A Donald Trump presidency and Republican-controlled Senate could boost big banks, according to Morgan Stanley analyst Betsy Graseck. To Graseck's point, financials jumped more than 6% on Wednesday — the sector's best day since November 2020 — following Trump's win. Financials were also the top-performing sector on the day as expectations of a deregulatory push and more mergers and acquisitions under Trump buoyed investor sentiment on the sector. The "U.S. Election points to higher probability of [a] bull case across our coverage as [a] Republican Administration brings with it a stable to lighter regulatory framework," Graseck wrote in a Thursday note. While the race for the House of Representatives has not yet been called, House Republicans are optimistic they can maintain a slim majority. If they manage to preserve their control of the House, it would result in a full Republican sweep of the executive and legislative branch, which "would be an additional accelerant to activity levels," per Graseck. The analyst highlighted four big banks investors should look toward: Citigroup, Goldman Sachs , Wells Fargo and Bank of America . Graseck holds an overweight rating on all four stocks. The acceleration in capital markets should benefit all the big banks, and Goldman Sachs is set to benefit the most, she noted. Bank of America is also expected to see gains from an uptick in activity. Goldman is up more than 12% week to date. Meanwhile, Citigroup is most exposed to tailwinds from higher excess capital levels as a Republican-led government is unlikely to raise current capital requirements. Graseck cited Citigroup's ability to buy back stock below tangible book value per share. Citigroup shares have popped 7% this week. Furthermore, "With the Trump win, our expectation is that the Fed may sit on the Basel 3 Endgame proposal, meaning that current capital rules remain untouched," Graseck said. She estimates this will result in an $86 billion jump in current excess capital for the big banks in the firm's coverage. Wells Fargo, which has gained 8% this week, will benefit from the removal of the asset cap, she said.
