BofA, Morgan Stanley get rare upgrades in season of pessimism

BANK OF AMERICA's stock was upgraded to buy by UBS AG, bucking recent trends and recommendations on bank stock investment. / BLOOMBERG NEWS FILE PHOTO/RON ANTONELLI
BANK OF AMERICA's stock was upgraded to buy by UBS AG, bucking recent trends and recommendations on bank stock investment. / BLOOMBERG NEWS FILE PHOTO/RON ANTONELLI

NEW YORK – Analysts haven’t shown a lot of love to bank stocks lately, but a few calls are swimming against the tide.

UBS AG upgraded Bank of America Corp. to buy, and is recommending adding exposure to large-cap bank shares as sentiment on stocks “has come full circle” after a dismal 2018, Saul Martinez wrote. At Citigroup Global Markets Inc., Keith Horowitz said it’s “tactical time to buy,” in a note boosting Morgan Stanley and Citizens Financial Group Inc. to buy.

That follows a cascade of pessimism in the past two days, including: Morgan Stanley lowering price targets and estimates for big banks like JPMorgan Chase & Co. and Citigroup; a sector downgrade to market weight, and downgrades of Wells Fargo & Co. and Northern Trust Corp. at Wolfe Research; Jefferies reducing price-target multiples, resulting in downgrades of JPMorgan, SunTrust Banks Inc. and US Bancorp; Raymond James downgrading 13 banks; Macquarie cutting BofA to neutral, and Goldman downgrading PNC Financial Services Group to neutral.

“The ample de-rating of bank stocks since August creates an opportunity,” UBS’s Martinez said in a note dated Jan. 8. “We focus on fundamentals rather than tactical considerations (e.g. near term catalysts) and feel that banks are pricing in profitability levels that are unlikely even with some credit normalization.”

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The KBW bank index is down about 18 percent since the end of July. Bank shares are gaining in pre-market trading, helped by renewed trade hopes in addition to the upgrades. BofA rose as much as 1 percent and Morgan Stanley gained as much as 1.8 percent as of 9:52 a.m. in New York.

UBS also lifted Regions Financial to buy and M&T Bank Corp. to neutral, and now has eight buy ratings and no sells. Citi’s Horowitz said he’s taken “the opportunity to refresh” views after bank stock underperformance over the past year.

“We view the macro backdrop as healthy and more consistent with late cycle and not end of cycle,” Horowitz wrote. He also reinitiated on Fifth Third Bancorp with a buy and reiterated buys on Wells Fargo, Capital One Financial Corp., American Express Co. and State Street Corp., and cut Bank of New York Mellon Corp. to neutral given recent outperformance.

Citigroup will kick off earnings for banks on Jan. 14. JPMorgan reports on Jan. 15.

Felice Maranz is a reporter for Bloomberg News.