Wells Fargo shares edged lower in premarket trading Monday after Morgan Stanley analyst Betsy Graseck downgraded the bank to equal weight from overweight.
The move comes even as Graseck raised her price target on the stock to $95 from $87, a level that implies just 2.3% upside from Friday’s close.
The call reflects Morgan Stanley’s view that, with the long-awaited removal of Wells Fargo’s asset cap, key catalysts for earnings growth are now largely priced into the stock.
Wells Fargo shares were trading at $84.6, down by 0.49% in premarket.
Asset cap removal leaves fewer catalysts
The Federal Reserve imposed the asset cap on Wells Fargo in 2018 as part of regulatory penalties following the bank’s sales practices scandal.
Its removal earlier this year was seen as a major turning point for the bank’s operations and earnings potential.
Graseck noted that her overweight rating was premised on this regulatory overhang being lifted.
“We were OW Wells heading into the asset cap removal, viewing it as an underappreciated catalyst for faster EPS growth,” she wrote in a note to clients.
Now that the milestone has passed, she believes Wells Fargo lacks fresh drivers for outperformance in the near term.
“We see more limited upside from here relative to our OW rated stocks,” she said.
Graseck added that the next meaningful catalyst may not come until January, when the bank issues fiscal 2026 guidance.
At that point, Wells Fargo is expected to raise its target for return on tangible common equity (ROTCE) above the current ~15%.
However, she cautioned that much of the potential benefit is already reflected in the market’s valuation of the stock.
ROTCE is a profitability metric closely watched by bank investors.
Interest rate headwinds
Another factor weighing on Morgan Stanley’s downgrade is the Federal Reserve’s shift toward monetary easing.
Earlier this month, the central bank cut its benchmark rate by a quarter of a percentage point, and traders are pricing in two more cuts before year-end, according to the CME Group’s FedWatch tool.
Graseck argued that Wells Fargo is unlikely to be a beneficiary of the rate-cutting cycle.
“We see Wells’ NII as vulnerable in the coming rate-cutting cycle,” she wrote, referring to net interest income, a core source of revenue for banks.
The analyst forecast contraction in net interest margin (NIM) through the end of 2026, resulting in her NII estimates running 1.5% below consensus for 2026 and 2.5% below for 2027.
Street remains largely bullish
Despite Morgan Stanley’s more cautious view, most Wall Street analysts remain optimistic about Wells Fargo’s prospects.
According to LSEG data, 17 of the 26 analysts covering the stock rate it a buy or strong buy.
Wells Fargo shares are up 21% year to date, reflecting investor confidence in the bank’s turnaround and earnings trajectory.
The slight premarket decline following the downgrade suggests markets are taking Morgan Stanley’s more measured stance into account, but sentiment overall remains broadly positive.
For now, the investment community will be watching closely for Wells Fargo’s 2026 guidance in January, which could provide clearer signals on the bank’s long-term profitability targets and strategic direction.
The post Wells Fargo shares in red as Morgan Stanley downgrade citing limited upside appeared first on Invezz