Big Banks Will Get Bigger Under Trump In 2025: Analyst

Morgan Stanley analyst Betsey Graseck is Overweight on big banks following Donald Trump's win and the Republican sweep of the 2024 election. 

Expert Ideas: On Monday, Graseck listed three main factors for Morgan Stanley's positive outlook on large-cap banks heading into 2025. She sees capital markets rebounding, the end of quantitative tightening and a stabilizing regulatory environment as beneficial to the industry.

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"We're really looking for stabilization in large cap bank regulation, and that's a positive, because elimination of a negative is a good thing," Graseck told CNBC's Squawk Box on Wednesday. 

Upgrades: Morgan Stanley upgraded all of the trust banks within its coverage and pointed to the end of quantitative tightening as the driver behind the upgrades. The firm sees deposit growth of between 3% and 7% which would benefit the trust banks as they skew to large institutional asset manager clients. 

• Graseck upgraded Bank of New York Mellon Corp. BK from Equal-Weight to Overweight and raised the price target from $82 to $94.
• The firm upgraded Northern Trust Corp. NTRS from Underweight to Equal-Weight and raised its price target from $103 to $127.
• Morgan Stanley also upgraded State Street Corp. STT from Equal-Weight to Overweight and raised the price target from $102 to $139.

Downgrades: The analyst sees a more balanced risk-reward for Bank of America Corp. BAC in the coming financial and political environment in which the firm prefers money centers with a higher skew to capital markets. 

• Morgan Stanley downgraded Bank of America from Overweight to Equal-Weight, but raised its price target from $48 to $55.
• Graseck also downgraded Regions Financial Corp. RF from Overweight to Equal-Weight and raises the price target from $28 to $32.

Graseck said the firm is reducing its exposure to credit risk amid the possibility of a recession in 2025. Accordingly, Morgan Stanley downgraded Regions Financial Corp. RF from Overweight to Equal-Weight due to its outsized exposure to Commercial and Industrial (C&I) lending. 

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