Updated from 10:22 a.m. EDTMorgan Stanley ( MS) and US Bancorp ( USB) were upgraded , while American Express ( AXP) saw its rating cut to a sell by Goldman Sachs in a banking industry note Wednesday. Goldman upgraded Morgan Stanley to a buy rating from neutral, based on the fact that the company is well positioned because of its "high capital position, reasonable valuation and leverage to improvement in the capital markets," the note says. The analysts also increased their 12-month price target by $6 to $27 a share. Morgan Stanley's tangible common equity ratio is 4.4% -- the highest among large-cap banks, according to the Goldman analysts. "Moreover, unlike banks, the majority of its balance sheet is marked to market, which makes current tangible book more realistic and stable," the analysts write. "Although it remains unclear how the stress test will apply to Morgan Stanley's securities portfolio, we believe mark-to-market institutions will compare favorably to held-to-maturity banks." Morgan Stanley appears to be well positioned to pay back the funding it received from the Troubled Asset Relief Program, or TARP, the analysts note. Goldman also says that as activity in the capital markets stabilizes, such as improvements in debt issuance, and Morgan's ability to gain market share from current market dislocations, the firm's earnings should improve. In addition, the joint venture Morgan Stanley agreed to with Citigroup's ( C) Smith Barney should enhance its deposit gathering capability. The analysts now expect the firm could make $1.80 a share this year, up 30 cents, and $2.70 a share next year, up 20 cents.
Goldman removed US Bancorp from its "Americas Conviction Sell" list and upgraded the stock to a neutral rating. The upgrade was based on valuation, the analysts say. However US Bancorp "still trades at a significant premium" to other large-cap banks, the note says. On the contrary, Goldman analysts cut the rating on American Express ( AXP) to a sell rating as "earnings headwinds continue to build and may force the company to be breakeven" this year -- excluding the MasterCard ( MA) and Visa ( V) settlements -- they write. Goldman expects charge-offs in the credit card industry to reach a high of 9% to 10% this credit cycle, but American Express' net charge offs will exceed that to possibly 10% to 12%. The analysts say that American Express has a higher exposure to credit card loans made at the height of the bubble, but are "performing much worse" as well as higher exposure to customers located in geographies that have been hurt most by the housing bubble. Despite its strong capital position, Goldman expects further reserve building at American Express as "unemployment and therefore losses will not peak until late 2010," the note says. Shares of Morgan Stanley were up 7.9% to $22.49as the market opened. US Bancorp shares rose 9% to $12.43, while American Express dropped 5.3% to $11.52.