Morgan Stanley Lowers Bank Sector Ratings in 2025 Amid Rising Tariff-Driven Recession Concerns
Morgan Stanley analysts have downgraded large- and mid-cap banks in 2025, citing escalating tariffs as a key factor increasing recession risks and impacting loan growth and market performance.
Essential Insights
- Morgan Stanley analysts have revised their outlook on large- and mid-cap banks from "attractive" to "in-line," highlighting the growing economic uncertainty driven by tariffs.
- The firm downgraded Goldman Sachs from "overweight" to "equal-weight," due to its heavy reliance on investment banking revenues vulnerable to recession pressures.
- Conversely, Bank of America was upgraded to "overweight," benefiting from attractive valuations amid market volatility.
On Monday, Morgan Stanley adjusted its sector view on major banks, emphasizing that President Trump's tariffs have heightened the risk of a recession. The analysts, led by Betsy Graseck, forecast a significant slowdown in GDP growth, which is expected to delay the recovery of capital markets, reduce loan growth, and increase net charge-offs on consumer and commercial loans.
The report points out that American consumers, who are the primary drivers of U.S. GDP, lack sufficient savings to offset the impact of tariffs and maintain their previous spending levels.
Strategic Bank Stock Adjustments
Goldman Sachs (GS) was downgraded to "equal-weight" from "overweight" due to its exposure to investment banking, a sector highly sensitive to recession and market downturns. Meanwhile, Bank of America (BAC) received an upgrade to "overweight" from "equal-weight," supported by its favorable valuation metrics.
Following these updates, Goldman Sachs shares declined nearly 1%, whereas Bank of America shares rose by approximately 2.7% during intraday trading.
Additionally, mid-cap banks were downgraded by Morgan Stanley analysts led by Manan Gosalia, citing that accelerated and elevated tariffs are amplifying recession risks, suppressing loan growth, and negatively impacting future earnings per share and valuation multiples.
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