Bank Stocks Plunge 25% Amid Economic Concerns, Morgan Stanley Upgrades U.S. Bank

In recent days, market concerns over economic slowdown and financial market volatility have led to a significant sell-off in bank stocks. As one of the more defenseless sectors, many bank stocks are currently trading at relatively low price-to-earnings ratios and book values. Notable examples include U.S. Bank, Citigroup, Goldman Sachs, and Jefferies Financial Group.

Reflecting the overall performance of bank stocks, the Invesco KBW Bank ETF has declined approximately 25% from its peak. Investors are expressing concerns about the exposure of the banking sector to economic and market risks.

Despite the overall pessimistic outlook for the industry, Morgan Stanley analyst Betsy Graseck released a report on Monday, upgrading the rating of U.S. Bank from "Equal Weight" to "Overweight." She highlighted that U.S. Bank's stock price is only eight times her forecasted earnings per share for 2026, making it an attractive investment. The current stock price stands at $34.70, which is still below the book value per share of $36 expected by the end of 2024. Graseck set a target price of $47 for U.S. Bank.

Additionally, the decline in U.S. Treasury yields has helped mitigate the unrealized losses in U.S. Bank's over $100 billion securities portfolio. CEO Brian Moynihan has consistently followed a "responsible growth" strategy, maintaining industry-leading loan quality.

In contrast, Citigroup has shown relatively weaker performance recently, with its stock price falling 1% on Monday to $57.60, down approximately 33% from its February high of $85. Analyst Mike Mayo from Wells Fargo noted, "Whenever a crisis hits, investors instinctively sell Citigroup like Pavlov's dogs." Despite this, Mayo still considers Citigroup his top pick for 2025.

Citigroup's position among investors is fragile due to its low returns and frequent operational missteps. The current stock price is only slightly more than half of the expected book value of $101 by the end of 2024, with a price-to-earnings ratio of less than 8. Citigroup leads the industry in global corporate cash management, serving enterprise clients in approximately 100 countries. Mayo believes that Citigroup's restructuring is gradually optimizing its business structure and enhancing its future return potential.

Goldman Sachs' stock price fell 1.7% on Monday to $462.85, down 30% from its February high of $672. Since its IPO in 1999, Goldman Sachs' stock price has often presented buying opportunities near its book value and selling opportunities when it reaches twice its book value. Currently, Goldman Sachs' price-to-book ratio is approximately 1.4, with a book value of $337. The company has stable asset quality, with almost no goodwill and intangible assets.

However, Graseck downgraded Goldman Sachs' rating from "Overweight" to "Equal Weight," citing its highest dependence on investment banking revenue among large banks. This segment is highly sensitive to economic downturns and market deterioration. She lowered her 2025 earnings per share forecast for Goldman Sachs from approximately $46 to $42.71 and expects its 2025 return on equity to be 12%, below the target range of 14% to 16%. Nevertheless, Goldman Sachs' trading business may partially offset the weakness in its investment banking business this year, with the current stock price at approximately 11 times the expected earnings for the year.

Jefferies Financial Group's stock price has declined nearly 50% since its January high, closing at $42.10 on Monday, returning to its 2021 trading range and below its book value of nearly $50. With a market capitalization of only $9 billion, Jefferies lacks the "too big to fail" policy protection but has maintained stable operations and strong risk control for many years.

Entering 2025, Jefferies' return to shareholders will be outstanding among its peers. The company's long-time CEO, Richard Handler, owns approximately 8% of the company's shares, with a market value of approximately $700 million, making him one of the industry's highest-ownership executives. He has always run the company with an "owner's mindset."

In comparison, JPMorgan Chase remains a standout in the banking industry. Investors in JPMorgan Chase benefit from the top-tier management team led by Jamie Dimon and the company's financially robust "fortress balance sheet."