Deutsche Bank AG (NYSE:DB) (ETR:DBK) downgraded Citigroup Inc. (NYSE:C) and Morgan Stanley (NYSE:MS) last December, and generally became more concerned about fixed income, currencies and commodities (FICC) earnings, and if anything first quarter FICC was worse than they had expected and 2Q is looking weak as well. But a combination of low expectations and a possible pickup in FICC has convinced Deutsche Bank analysts Matt O’Connor, David Ho, and Robert Placet that it’s time to take a second look at market sensitive banks, especially Bank of America Corp (NYSE:BAC).

Bank Of America BAC
Bank of America Corp BAC

“We sense some pick up within FICC in June given strong credit issuance, tighter spreads and a pickup in broker dealer inventory levels. From here, 2H14 yoy comps are easier for FICC,” they write. “M&A activity should also pick up materially based on what’s been announced this quarter and M&A tends to lead to ancillary business, often boosting revenues by 2-4x advisory fees.”

Deutsche upgrades Bank of America, says sub-prime legal exposure already priced in

They highlight Bank of America Corp (NYSE:BAC), upgrading it from a Hold to a Buy and increasing the price target from $16.50 to $18 (currently $16.03), as being particularly well positioned for rising interest rates and an improving economy. They also argue that BAC doesn’t have much legal downside because its non-mortgage legal issues are mostly behind them. Of course BAC is very much on the hook for its actions during the sub-prime crisis, the Department of Justice reportedly shot down a recent $12 billion settlement offer, but they argue that the sub-prime liabilities are already priced in.

O’Connor, Ho, and Placet also rate Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) as Buys for roughly the same reasons – they stand to benefit from improved capital markets, higher interest rates, and recovering markets.

Wells Fargo’s outperformance might reverse as markets improve

On the other hand, Wells Fargo & Co (NYSE:WFC) has pulled away from Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) this year simply because it hasn’t had the same exposure to litigation and weak markets, and it could slide if those trends change direction.

“The 1700bps of outperformance in WFC vs. both BAC and JPM seems a bit much in our view—especially if FICC stabilizes/improves, M&A remains strong, and interest rates tick up (all big ifs, to be fair),” they write.