- Big banks like JPMorgan, Bank of America, and Citigroup are favored for 2026 on improving capital-markets activity, steadier net interest margins, and ongoing tech/efficiency gains.
- Citigroup is framed as a discounted turnaround as restructuring and cost cuts make fee-income strength more visible despite a low P/TBV versus peers.
- Many regional and community banks screen as value trades because they sit below book or tangible book value, albeit with higher concentration and credit-risk sensitivity.
- Key swing factors are rate policy, credit quality (notably CRE and consumers), regulatory shifts, and fintech competition that could blunt the tailwinds.
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The banking sector appears to be transitioning into a more favorable phase heading into 2026. Larger universal banks—those with both retail and investment banking operations—are benefiting from revived capital markets (M&A, IPOs) and improving net interest margins (NIMs) as rates stabilize and funding costs moderate. JPMorgan Chase (market cap ~$886B, dividend yield ~1.7%) is highlighted for its resilient balance sheet, diversified revenue source, and anticipated growth in non-rate-sensitive income. Similarly, Bank of America is praised for its turnaround, strong loan growth, and efficiency improvements, although it remains sensitive to rate changes.
Citigroup is positioned as a value opportunity: its ongoing restructuring (including exiting low-return businesses and flattening management layers) is yielding cost savings and making strength in fee income more visible, while valuation (e.g. P/TBV) remains low relative to peers.
Regionals and community banks represent the value side of the trade. Many of them are trading well below book or tangible book value, with some of the cheapest among them (e.g. Valley National, Simmons First National, Prosperity Bancshares, Truist) expected to show double-digit earnings growth. These banks carry elevated risk (concentrated balance sheets, sensitivity to asset quality in local markets), which investors should discount appropriately.
Sector indicators point to positive momentum: in December 2025, U.S. bank stocks outpaced the broader market, with the median bank delivering nearly 3 % gains vs essentially flat for the S&P 500; adjusted tangible book value ratios rose modestly. Meanwhile, large deal volumes—in M&A and IPOs—are expected to contribute materially to upcoming earnings for banks with strong investment banking franchises.
Risks to this optimism include rate cuts that compress margins too rapidly, credit deterioration in stressed sectors (commercial real estate, consumer borrowing), regulatory pressures (e.g. capital, stress testing, consumer protection), and competition from fintech and non-banking institutions. Valuations for some mega banks may already reflect much of the bullish outlook, implying limited upside without strong execution.
Supporting Notes
- Motley Fool’s “Best Bank Stocks to Watch in 2026” names Bank of America, JPMorgan Chase, U.S. Bancorp, Citigroup, and SoFi Technologies as top picks, with respective market caps and dividend yields: BAC ~$409B / 1.93 %; JPM ~$886B / 1.71 %; USB ~$84B / 3.78 %; C ~$212B / 1.95 %; SOFI ~$34.6B / 0 %.
- JPMorgan Chase is trading at a 52-week range of ~$202–330, with diversified revenue and a leading credit card/auto business; Bank of America shows strong retail banking and investment bank capacity, though margins pressured amid high rates.
- “Cheapest” banks in 2026 include Valley National (expected earnings growth ~54.8 % in 2025, ~28.1 % in 2026; P/B ~0.8), Simmons First National (earnings up ~19.9 % in 2025, ~13.6 % in 2026; P/B ~0.75), Truist Financial (4.7 % dividend yield; P/B ~0.95), First Merchants, Prosperity Bancshares among others.
- Median U.S. banks returned ~2.9 % in December 2025 vs 0.1 % for S&P 500; only 18 out of 208 traded below adjusted tangible book value; TBV median rose to ~140 % at end-Dec 2025.
- Investment banking activity surged: M&A volume jumped ~42 % globally (for Q4 2025), to ~$5.1 trillion; traders anticipate that sector’s revenue rebound will lift banks like Goldman Sachs, Morgan Stanley, BofA, and Citigroup.
- Citigroup’s transformation is already delivering: job cuts (20,000 target by 2026), exits in consumer banking outside core markets; management expects annual run-rate savings ~US$2–2.5 billion by 2026; revenue growth ~9 % in recent quarters; earnings ~23 % up year-over-year.
- JPMorgan’s forward P/E (~15.3) is roughly in line with other mega banks and significantly below the S&P 500 average (~22.5) as of Jan 5, 2026; total return in 2025 for JPM was ~37.3 %, vs ~17.9 % for the S&P 500.