Wells Fargo, US Bancorp Have Limited Upside Potential, Morgan Stanley Says

12:52 PM EDT, 09/29/2025 (MT Newswires) -- Shares of Wells Fargo (WFC) and US Bancorp (USB) have limited upside potential, Morgan Stanley said in a note as the brokerage downgraded ratings on both banks to equal-weight from overweight.

Wells Fargo (WFC) had been subject to asset growth restrictions for more than seven years, before the Federal Reserve removed that requirement in June. The asset cap removal was previously seen as a key catalyst.

Wells could now pivot toward a growth-oriented bank, but the brokerage expressed concerns about the lender's net interest income.

"Wells characterizes itself as modestly asset-sensitive, and we had expected it to benefit from a higher-for-longer rate environment, with cuts pushed further into 2025," Morgan Stanley said in the note emailed Monday. "That tailwind has been less impactful than anticipated."

Earlier this year, management lowered its 2025 net interest income guidance, expecting flat levels year on year. "Looking ahead, we see Wells' NII as vulnerable in the coming rate-cutting cycle," according to Morgan Stanley, which pointed to expected net interest margin contraction in 2026.

The brokerage expects 125 basis points of interest rate cuts between now and the end of 2026. The Fed's monetary policy committee lowered its policy rate by 25 basis points this month, noting increased downside risks to employment and signaling further monetary policy easing later in 2025.

The next "meaningful" catalyst for Wells Fargo (WFC) could come in January, when the bank issues its 2026 guidance and may raise its medium-term return on tangible common equity target, but the market has likely priced that in already, the brokerage said.

For US Bancorp (USB), Morgan Stanley flagged high deposit costs that may weigh on the bank's NII.

"We see (US Bancorp (USB)) benefiting into rate cuts, with margins expanding with Fed rate cuts, but with little visibility into deposit behavior this cycle, we acknowledge that deposit costs could remain elevated at times and create intermittent pressure on NII," it said. "Our NII estimate for 2026 is now below consensus even after incorporating rate cuts into our model."

Still, Morgan Stanley raised the price targets on Wells Fargo (WFC) and US Bancorp (USB) to $95 and $56, respectively, from $87 and $52.

"We stop short of (underweight) as Wells is still positioned for above-average growth post-cap, supported by strong capital returns and excess capital for organic growth or incremental capital return," the brokerage said. "(US Bancorp (USB)) still screens cheap relative to the high returns it generates and management is laser focused on closing the valuation gap by executing on its newly laid out strategy."

Price: 84.27, Change: -0.75, Percent Change: -0.88

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