According to a recent report by Morgan Stanley, banks could see a significant boost in their stocks due to potentially easier capital requirements. The report suggests that the Basel III endgame - a set of rules proposed last summer that would require higher capital levels for banks with over $100 billion in assets - may be lightened up. This positive development could open the door for increased buybacks, especially for large-cap banks that currently have record levels of excess capital.

Morgan Stanley analysts, led by Betsy Graseck, believe that the majority of big banks' management teams have indicated that the rules will be less stringent. In response, the analysts have adjusted their models to account for a lower risk-weighted assets uplift compared to banks' original disclosures.

In light of this analysis, Morgan Stanley has made some notable changes to its ratings and price targets for certain banks:

1. Bank of America: The bank's rating has been raised from Equal Weight to Overweight, with the stock-price target increased from $32 to $41. This upgrade is primarily based on valuation, as Bank of America's shares are currently trading near the lower end of their average range over the past decade. Bank of America's stock was up 3.5% to $34.78 at the time of writing, on track for its highest close since February 17, 2023.

2. Citigroup: Morgan Stanley has upgraded Citigroup from Underweight to Overweight and raised its price target from $46 to $65. As a result, Citigroup's stock gained 5.1% to $56.88, poised for its largest increase since March 14, 2023.

Overall, the prospects of easier capital requirements for banks have sparked optimism among market analysts, suggesting potential gains for stocks in the sector. Investors will be closely monitoring these developments and their impact on individual banks moving forward.

Citi Positioned to Benefit from Lighter Basel Endgame Rules

According to analysts, Citi is expected to be the biggest winner among the money centers due to potentially lighter Basel Endgame rules. The stock is currently trading at only 0.5x book value per share, providing Citi with the opportunity to buy back stock below book value. This strategic move would be a highly beneficial financial transaction for the company.

Goldman Sachs Upgraded as Capital Markets Resurge

Goldman Sachs has been upgraded from Equal Weight to Overweight. Morgan Stanley has also increased its target for the stock price, setting it at $449, up from the previous target of $333. The investment bank is projected to reap the rewards of a resurgence in capital markets, with a significant portion of its revenue anticipated to come from global banking and markets this year. As a result, shares of Goldman have seen a modest 1.7% increase, reaching $386.92.

Bank of New York Mellon Sees Potential Basel 3 Capital Freed-Up

Bank of New York Mellon has been upgraded to Equal Weight from Underweight, along with an increase in its price target for the shares to $62. This upgrade comes as the team anticipates a better-than-feared outcome on Basel 3 Endgame, which could potentially free up around $4 billion in capital for return to shareholders between 2025 and 2026. As a result, BNY's stock has increased by 0.3% to $56.05.

Northern Trust Downgraded, but Price Target Raised

Despite being downgraded to Underweight from Equal Weight, Northern Trust has had its price target raised by Morgan Stanley to $86 from $82. This adjustment reflects an optimistic outlook for the company. Nevertheless, Northern's stock has experienced a slight dip of 0.7% and is currently valued at $80.75.

Ratings and Target Prices for Other Financial Institutions

The team at Morgan Stanley has maintained their ratings on Regions Financial, Wells Fargo, JPMorgan Chase, Truist Financial, State Street, U.S. Bancorp, and PNC Financial Services. However, they have also increased the target prices for these stocks, indicating positive expectations for their future performance.