As we head into earnings season, investors will be wondering if 2025 might be another excellent year for bank stocks. Citigroup Inc. and Charles Schwab Corp. appear to be standout names at this point in the industry cycle, but for different reasons.
Earnings season for the largest U.S. banks will begin on Wednesday, when JPMorgan Chase & Co. JPM, Citigroup C, Wells Fargo & Co. WFC and Goldman Sachs Group Inc. GS announce their fourth-quarter results. Bank of America Corp. BAC and Morgan Stanley MS will follow on Thursday.
Read: JPMorgan, Citi, Wells Fargo and Goldman’s earnings results may boost banks stocks further
With investors anticipating an improving interest-rate environment for banks, the KBW Nasdaq Bank Index BKX returned 11.4% during the fourth quarter, even as the S&P 500’s SPX bull run slowed for a return of 2.4% for the same period. All investment returns in this article include reinvested dividends.
Here is a one-year chart comparing total returns for both indexes through Friday:
The KBW Bank Index includes 24 large and regional U.S. banks and is tracked by the Invesco KBW Bank exchange-traded fund KBWB.
Citigroup is still cheaply priced and may have a huge advantage under Trump
Here is how stocks of the six largest U.S. banks have performed over the past year. The table also includes forward price-to-earnings ratios, price-to-tangible-book-value ratios and dividend yields based on Friday’s closing prices:
| Bank | Ticker | One-year return through Jan. 10 | Price/ tangible book value | Price/ earnings, next 12 months | Dividend yield |
| JPMorgan Chase & Co. | JPM | 43.5% | 2.52 | 13.9 | 2.08% |
| Bank of America Corp. | BAC | 37.7% | 1.73 | 12.7 | 2.31% |
| Citigroup Inc. | C | 39.7% | 0.80 | 10.5 | 3.14% |
| Wells Fargo & Co. | WFC | 46.3% | 1.68 | 12.8 | 2.29% |
| Goldman Sachs Group Inc. | GS | 50.2% | 1.74 | 13.4 | 2.14% |
| Morgan Stanley | MS | 39.9% | 2.82 | 15.4 | 3.00% |
| Source: FactSet |
The forward P/E ratios are based on consensus estimates for earnings per share among analysts for the next 12 months. The price/tangible book value ratios are based on current prices and Sept. 30 tangible book value, as calculated by FactSet. A bank’s tangible book value excludes intangible assets such as goodwill, deferred tax assets and loan-servicing rights.
Citi still trades lowest by both valuation ratios among the largest U.S. banks, and if we screen the 50 largest banks in the S&P Composite 1500 Index XX:SP1500 by total assets, only one bank trades lower by this measure.
Flagstar Financial Inc. FLG of Hicksville, N.Y., trades at half its tangible book value. This is the former New York Community Bancorp, which a year ago was suffering from a decline in credit quality in its core portfolio of multifamily mortgage loans. The bank was recapitalized in March by a group of investors that included former U.S. Treasury Secretary Steven Mnuchin. Such a large capital raise put the new investors in control of the bank, with Mnuchin joining its board of directors in April. Flagstar Financial took its current name in October; its main banking subsidiary was already named Flagstar Bank NA.
Getting back to Citi, a change in the regulatory landscape might be especially helpful. After Donald Trump was elected to a second term as president in November, Frank Mayer, senior counsel at Stevens & Lee and a former senior official at the Federal Deposit Insurance Corp., predicted several changes for top federal regulators, including a new vice chair for supervision at the Federal Reserve. On Jan. 6, the Fed announced that Michael Barr would step down from his role as the top regulator for U.S. bank holding companies but that he would remain as a Federal Reserve governor.
As part of that announcement, the Federal Reserve Board of Governors said it didn’t intend to take up any major rulemaking until a new vice chair for supervision had been confirmed by the Senate.
Following the Fed’s announcements on Jan. 6, Keefe, Bruyette & Woods analyst David Konrad wrote in note to clients that “it is likely the Basel III Endgame will be meaningfully watered down and likely to be more capital neutral.”
Basel III is an international framework for banks’ capital requirements, upon which each country or region’s banking regulators can base their own enhanced capital requirements. U.S. banks’ capital requirements had already been increased under the Dodd-Frank banking reform legislation in 2010.
Konrad continued: “Mr. Barr was currently working on a revision to lower the [new additional] capital requirements by approximately 50%; however, his departure will likely result in further reductions in capital requirements to a level more consistent with current international standards.” He went on to predict that a “more capital neutral” regulatory approach “would be approximately 6% accretive to EPS for the G-SIB group led by Citigroup at 18% owing to its capital levels and valuation below tangible book value.”
G-SIB stands for global systemically important banks, which are subject to enhanced capital requirements. In the U.S. this group includes the “Big Six” as well as State Street Corp. STT, Bank of New York Mellon Corp. BK and Northern Trust Corp. NTRS because of the latter three banks’ importance in securities-custody services.
Because of its discount to tangible book value, as well as its “good position to capture opportunities in investment banking and trading given the expectation for improved market conditions following the election,” Konrad called Citi a “top idea for 2025” in a Jan. 2 report. His price target for the stock is $85, which is 19% higher than Friday’s closing price of $71.40.
Leaving the six biggest U.S. banks in the same order as the first table, here is a summary of analysts’ opinions for the group:
| Bank | Ticker | Sept. 10 price | Consensus price Target | Implied 12-month upside potential | Share buy ratings | Share neutral ratings | Share sell ratings |
| JPMorgan Chase & Co. | JPM | $239.87 | $259.65 | 8% | 64% | 28% | 8% |
| Bank of America Corp. | BAC | $45.11 | $51.85 | 15% | 83% | 13% | 4% |
| Citigroup Inc. | C | $71.40 | $86.75 | 21% | 81% | 19% | 0% |
| Wells Fargo & Co. | WFC | $69.96 | $78.81 | 13% | 58% | 38% | 4% |
| Goldman Sachs Group Inc. | GS | $560.00 | $628.95 | 12% | 60% | 36% | 4% |
| Morgan Stanley | MS | $123.45 | $133.42 | 8% | 31% | 65% | 4% |
| Source: FactSet |
Schwab is now well-positioned for the interest-rate environment
From March 2022 through July 2023, the Federal Reserve increased the federal-funds rate — the benchmark rate upon which banks’ deposit rates are based — from a target range of 0.25% to 0.50% to a range of 5.25% to 5.50%. The Fed was increasing short-term rates quickly in an effort to lower inflation.
Although Charles Schwab Corp. SCHW is mainly known as a brokerage firm, its subsidiary bank is an important profit center. While short-term rates were rising, some of Schwab’s brokerage clients who were formerly content to earn next to nothing on cash balances in their brokerage accounts started to pursue higher yields, forcing Schwab to compete to retain deposits. This led to liquidity concerns, which helped push the firm’s stock down 37% during the first quarter of 2023.
After a rather long period during which yields on short-term U.S. Treasury bills were higher than those on 10-year Treasury notes, the Fed’s change in policy — lowering the target range for the federal-funds rate by 1% since September to a current range of 4.25% to 4.50% — has helped to normalize the yield curve, with long maturities having higher yields than short ones. On Monday morning, three-month Treasury bills BX:TMUBMUSD03M were yielding 4.32%, while 10-year Treasury notes BX:TMUBMUSD10Y were yielding 4.77%.
So now the question is, which banks appear to be best-positioned to benefit from the Fed’s change in interest-rate policy?
A bank’s net interest margin is the difference between the average interest rate it pays for deposits and borrowings and the average it earnings on loans and investments. There are various ways to calculate NIM, so for the following screen we used consensus estimates among analysts polled by FactSet for net interest income (interest earned less interest paid) and average earning assets for banks in 2024 and 2025.
Returning to our screen of the largest 50 banks by total assets in the S&P 1500 Composite Index, Schwab tops this list of 10 banks expected to show the widest expansion for their NIM in 2025. The table also includes projected increases in annual earnings per share, at right:
| Bank | Ticker | Projected 2025 NIM improvement | 2025 estimated net interest income/ average earning assets | 2024 estimated net interest income/ average earning assets | Estimated 2025 increase in EPS |
| Charles Schwab Corp. | SCHW | 0.49% | 2.62% | 2.13% | 26.0% |
| KeyCorp | KEY | 0.43% | 2.62% | 2.19% | 51.1% |
| UMB Financial Corp. | UMBF | 0.42% | 2.88% | 2.46% | 3.4% |
| Prosperity Bancshares Inc. | PB | 0.30% | 3.21% | 2.91% | 15.4% |
| Ally Financial Inc. | ALLY | 0.29% | 3.49% | 3.20% | 39.6% |
| Capital One Financial Corp. | COF | 0.25% | 7.16% | 6.91% | 14.8% |
| Associated Banc-Corp. | ASB | 0.21% | 3.00% | 2.79% | 10.4% |
| American Express Co. | AXP | 0.19% | 8.30% | 8.11% | 9.2% |
| Comerica Inc. | CMA | 0.15% | 3.09% | 2.94% | 7.0% |
| PNC Financial Services Group Inc. | PNC | 0.15% | 2.78% | 2.63% | 13.6% |
| Source: FactSet |
Leaving the list of expected NIM improvers in the same order, here is a summary of analysts’ opinions for the stocks:
| Bank | Ticker | Sept. 10 price | Consensus price target | Implied 12-month upside potential | Share buy ratings | Share neutral ratings | Share sell ratings |
| Charles Schwab Corp. | SCHW | $72.77 | $84.90 | 17% | 63% | 24% | 13% |
| KeyCorp | KEY | $16.72 | $20.18 | 21% | 45% | 55% | 0% |
| UMB Financial Corp. | UMBF | $109.77 | $138.67 | 26% | 78% | 22% | 0% |
| Prosperity Bancshares Inc. | PB | $73.40 | $89.43 | 22% | 67% | 33% | 0% |
| Ally Financial Inc. | ALLY | $34.19 | $42.29 | 24% | 59% | 36% | 5% |
| Capital One Financial Corp. | COF | $175.29 | $206.17 | 18% | 52% | 44% | 4% |
| Associated Banc-Corp. | ASB | $23.26 | $27.78 | 19% | 11% | 89% | 0% |
| American Express Co. | AXP | $293.30 | $308.26 | 5% | 37% | 50% | 13% |
| Comerica Inc. | CMA | $60.21 | $71.60 | 19% | 29% | 54% | 17% |
| PNC Financial Services Group Inc. | PNC | $189.02 | $221.00 | 17% | 56% | 32% | 12%
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