Updated with additional commentary on PNC and Wells Fargo.
NEW YORK (
) -- Saying it was time to "shift to stocks with greater earnings certainty during this slowdown," a team of Morgan Stanley analysts on Monday made a slew of ratings and price target changes for large U.S banks.
The analyst team -- lead by Betsy Graseck - said it was "resetting" its view on large-cap U.S. banks, after the "Morgan Stanley economics team
forecasted a recession in Europe in 4Q11-1Q12 and slower US GDP growth in 2013 than in 2012."
Morgan Stanley said preferred large-cap U.S. banks that "can take C&I share, have less EU exposure, and have higher dividend yields," include
PNC Financial Services Group
"C&I" loans are commercial loans not secured by real estate.
Morgan Stanley upgraded U.S. Bancorp to an "Overweight," or "Buy," rating, from a neutral rating of "Equal Weight," while increasing its 12-month price target for the stock to $31 from $29.
U.S. Bancorp was included among
, with average third-quarter C&I balances increasing 12% from a year earlier. The shares closed at $24.03 Friday, declining 10% year-to-date. In comparison, the
KBW Bank Index
saw a 33% year-to-date decline.
BB&T was also upgraded to "Overweight" from "Equal Weight," with its price target remaining at $29. The Winston-Salem, N.C., lender bucked the industry trend with a third-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and borrowing -- increasing to a strong 4.15% during the third quarter, from 4.01% during the third quarter of 2010. The shares closed at $21.17 Friday, down 17% year-to-date.
For PNC Financial Services Group, Morgan Stanley kept its "Overweight" rating, while cutting its price target on the shares to $63 from $65. Graseck said she had reduced her "equity issuance assumption" for the company's coming purchase of
RBC Bank USA
Royal Bank of Canada
to $500 million from $1 billion. Shares of the Pittsburgh lender closed at $49.07 Friday, for a year-to-date decline of 18%.
Wells Fargo also kept its "Overweight" rating, with Morgan Stanley cutting its price target by a dollar to $31. Graseck said Wells Fargo had "minimal European exposure," and that catalysts for the shares included an expanding net interest margin and "lower expense ratio driven by prior balance sheet and expense restructuring, and higher accretion than expected" from the company's acquisition of Wachovia in December 2008.
Morgan Stanley on Monday lowered its price targets for two other large cap banks with "Overweight" ratings.
The price target for
was lowered to $40 from $49, with Graseck saying that catalysts for the shares included "faster loan growth, faster expense reductions, faster card improvement, more reserve release, higher share buybacks, and slower deterioration in housing credit losses," while downside risks included "stricter than expected" interpretations of legislation by regulators, higher-than-expected credit costs, "stymied market share gains in global markets," narrowing net interest margins and the possible "inability to repurchase stock."
, Morgan Stanley lowered its price target to $55 from $60, saying that catalysts include "faster loan growth and higher "expense synergies" from its coming acquisitions of
U.S. credit card portfolio. Downside risks included "slower than expected credit improvement, high attrition on acquired portfolios, and a higher dilution" from capital raises.
Morgan Stanley downgraded the following U.S. financial companies on Monday:
- Citigroup (C) - Get Report saw its rating lowered to "Equal Weight" from "Overweight," with its price target severely cut to $30 from $45.
- American Express (AXP) - Get Report was downgraded from "Overweight" or "Buy," to a neutral rating of "Equal Weight," with its 12-month price target cut by Morgan Stanley to $51 from $55.
- For Bank of New York Mellon (BK) - Get Report, Morgan Stanley lowered its rating to "Underweight" or "Sell," from "Equal Weight," while cutting the price target to $22 from $26.
- Northern Trust (NTRS) - Get Report also saw its rating lowered by Morgan Stanley to "Underweight," with its price target cut to $41 from $44.
- Morgan Stanley also lowered its rating for State Street (STT) - Get Report to "Underweight," cutting the Boston custody bank's its price target cut to $40 from $48.
For Citigroup, Graseck said that "downside risks include euro volatility, emerging market slowdown, rising losses in non-core, delayed capital return, larger write-off than market expects on Greece," as well as the possible "inability to repurchase stock."
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.