The latest trend among financial analysts is the ongoing circular upgrading of banks by other banks. The most recent example is yesterday's report by Morgan Stanley "Q3 remains constructive for wholesale banks." In the piece, analyst Huw Van Steenis sees nothing but blue skies ahead of the financial sector, especially Credit Suisse and Deutsche Bank. The verdict: "We remain positive on some of the wholesale banks as we expect them to be beneficiaries of low rates, steep curves, compressing risk spreads and refinancing needs." The fact that banks are now effectively liquidity proxies for various printing presses, especially that of the Fed, which continues throwing liquidity into the market at a $35 billion a week clip, is strangely missing from the analysis.

Here is Huw's commentary on CS and DB. We fully expect the former two to have comparable kind words for Morgan Stanley within the week.

For CSG we still see 25% upside to our Sfr73 base case price target and 70% to our bull case. Our estimates for 2010e are 15%+ above latest street estimates and our 2010e divi estimate is similarly higher by 30%+ (and we have separately written we think there are opportunities to play).

DBK is executing well and we have upped our estimates today. Management has indicated that they think provisions will now be below €3bn for 2009, and we have sought to model this, although we feel the risk on the CRE portfolio remains elevated. As a result we have just 8%  to our base case price target, although 45% to our bull case should the risks be less elevated than we currently think. We also recognise that per company statements and press reports Deutsche is in talks to buy a stake in Sal Oppenheim (e.g. September 29, Reuters), and per unconfirmed press reports is in renewed discussions to buy the mid market portfolio of ABN (October 5, Reuters). The CFO last week said that they may consider capital raising with any such acquisition, and we are intrigued that this could offer an opportunity to further degear the group and diversify it, which could offer medium-term upside should these events take place. This said, as we argued in our depth note - Deutsche Bank: Switching Out, July 30, 2009 – given legacy/higher risk assets represent 1.4x TCE, or, put another way, some ~25% of the €37.6 TBVPS in 2Q09 is the accounting benefit of IAS 39, we think that until we gets a lot more comfort on asset quality of the legacy assets, it will hold back expectations on earnings and book value growth.

Somehow, and not too surprisingly, a full discussion of what happens to DB if all the accounting magic is removed and all the "assets" on its balance sheet are revealed, especially in light of the firm's capitalization ratio which leaves most of its American brethren gasping in jealousy, is missing.

We hope someone keeps track of tech analyst reports from 1999 when so called professionals were upgrading tech stocks with the same reckless abandon as now is the case in the financial bubble. It would make for an amusing read. On our part, Zero Hedge has started a repository of all relevant financial upgrades, together with the people who penned them, which will be an amusing read when this most recent iterration of the Madoff scheme finally falls apart.