Morgan Stanley downgraded Wells Fargo & Company (NYSE:WFC) and U.S. Bancorp (NYSE:USB), saying their upside now lags peers.
Though brokerage said stronger capital markets activity and expectations for six Federal Reserve rate cuts through 2026 support a more optimistic outlook in the banking sector.
It sees bank stocks would rise in the upcoming years based on that mergers and equity issuance will return to long-term averages by 2027.
Wells Fargo cut to ‘Equal-weight’
Wells Fargo was downgraded after its long-awaited removal from an asset cap, which Morgan Stanley had viewed as a key catalyst for earnings acceleration. With that event now priced in and the stock trading at a premium, the bank sees less room for further multiple expansion.
The new $95 price target implies 12% upside, below the roughly 26% average upside across Morgan Stanley’s Overweight-rated banks.
The broker also warned Wells Fargo is not well positioned for falling interest rates, forecasting net interest income below consensus in 2026 and 2027 as deposit repricing fails to offset lower loan yields.
U.S. Bancorp also downgraded
U.S. Bancorp was similarly cut to Equal-weight. Morgan Stanley’s $56 price target implies 13% upside, again short of peers. While it expects margins to expand under a lower-rate environment, deposit costs remain a risk and its net interest income forecasts remain below consensus even after factoring in rate cuts.
Citizens upgraded on profitability upside
Whereas, Citizens Financial Group was upgraded to Overweight with a $71 target, pointing to what Morgan Stanley called one of the clearest return-on-equity improvement stories in the sector. It expects the bank’s return on tangible equity to rise from 11% in 2025 to 15% in 2027, narrowing its discount to peers.
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