Keefe, Bruyette & Woods raised its ratings for Citigroup and Wells Fargo to outperform from market perform, saying the banks will benefit from increased shareholder capital return and Federal Reserve rate hikes.
Both banks report first-quarter earnings next week.
"We remain optimistic near term that bank fundamentals will continue improving — led mostly by higher rates. We expect regulatory changes to occur that will eventually benefit universal banks, but thus far we are only changing our expectations for capital return related to the annual Fed stress tests, analyst Brian Kleinhanzl wrote in a note to clients Tuesday. "Thus, our estimates reflect an improving rate environment and higher capital return, and that is enough for us to remain constructive on the space broadly."