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By: CNBC.com | 21 May 2009 | 09:48 AM ET
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Goldman Sachs upgraded large US banks to "neutral" due to the substantial capital raised by the banks and prospect for strong gains into the second quarter, the Goldman's analysts said in a research note.

The move follows the recent upgrade of Bank of America [BAC  Loading...      ()   ] to "conviction buy," alongside JPMorgan Chase [JPM  Loading...      ()   ], and takes into account "the prospect for continued strong mortgage and capital markets earnings which is likely to persist in the second quarter," the analysts wrote.

Besides, "the leveraged loss cycle for large banks may be over," they wrote, noting that the stress tests induced $100 billion of capital raised at big banks, cutting leverage. Writedowns may also be nearing an end as stock market indices are improving.

Goldman Sachs [GS  Loading...      ()   ] rates Morgan Stanley [MS  Loading...      ()   ] at "buy" and PNC [  Loading...      ()   ], US Bancorp [USB  Loading...      ()   ] and Wells Fargo [WFC  Loading...      ()   ] at "neutral." Citigroup [C  Loading...      ()   ] is not rated.

Trust banks such as Bank of New York Mellon [BK  Loading...      ()   ], Northern Trust [NTRS  Loading...      ()   ] and State Street [STT  Loading...      ()   ] were upgraded to "attractive," while regional banks such as Fifth Third Bancorp [FITB  Loading...      ()   ], KeyCorp [KEY  Loading...      ()   ] and Regions Financial [RF  Loading...      ()   ] were maintained at "cautious".

These banks have less capital, benefit from improving credit spreads, derive 7 percent of their revenue from mortgages versus 20 percent at big banks, and still have capital raises ahead of them "as they play catch-up to the stress test," the note said.

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