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May 23, 2025
America’s Banks are Back in Business
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Insights
May 23, 2025
America’s Banks are Back in Business
A Favourable Economic Backdrop
The 2025 economic outlook is clearly playing in favour of US banks. Following several rate cuts in 2024, the Federal Reserve has now stabilised interest rates between 3.00% and 3.25%. This steady policy supports net interest margins, which currently sit between 2.5% and 3% — a key component of sector profitability.
US economic growth may also exceed expectations, especially as Donald Trump appears unlikely to revert to aggressive tariffs. This easing could support demand for credit in housing, consumer spending and business lending, while helping to reduce the risk of defaults.
Another positive sign is the stabilisation of reserves set aside for potential losses. After surging in 2022–2023, these reserves are now stabilising, giving banks more flexibility to return capital through dividends and share buybacks. Meanwhile, contained inflation (2.5%–3%) is easing cost pressures and bolstering household confidence, a key driver of banking activity.
Limited Exposure to Tariffs
The new tariffs introduced in 2025, ranging from 10% to 20%, mainly target industry and discretionary consumer goods, leaving the banking sector largely untouched. Since more than 80% of Bank of America’s revenue comes from within the United States, the impact is limited.
In fact, these protectionist measures have prompted a wave of industrial reshoring, which in turn is fuelling corporate demand for finance, particularly for investments in equipment, real estate, and infrastructure. Regional banks are especially well positioned to benefit.
Attractive Valuations
Bank stocks currently trade at modest price-to-earnings ratios — around 10 to 12 times for the KBW Bank Index, compared to 20 to 25 times for the S&P 500. This lower valuation reflects lingering recession fears, which have largely eased thanks to recent macroeconomic data.
Dividend yields are also compelling: around 2.5% for JPMorgan, and 3% for Wells Fargo. Share buybacks further enhance shareholder value, supported by solid balance sheets.
Strong Fundamentals, Digital Push
America’s major banks remain on solid financial footing. The Federal Reserve’s 2024 stress tests reaffirmed their resilience, with CET1 capital ratios well above regulatory requirements — JPMorgan, for instance, stands at 12.5%.
Over-reserving in prior years has now been corrected, freeing up capital. At the same time, digitalisation efforts are ongoing, with automation and AI helping to deliver significant cost savings. Bank of America, for instance, has lowered its cost-to-income ratio from 65% to 60% over the past four years.
Upcoming Catalysts
Several factors could continue to support the sector. Potential deregulation under the Trump administration, including a possible loosening of Dodd-Frank or Basel III rules, could encourage a new wave of mergers and acquisitions, particularly among regional banks such as PNC Financial.
A revival in IPOs and corporate deals is also benefiting investment banks such as Goldman Sachs and Morgan Stanley. And amid ongoing geopolitical uncertainty from Ukraine and Taiwan to the Middle East, banking stocks are regaining favour as a defensive play.
WHO STANDS TO GAIN?
With stable interest rates (3.00–3.25%), manageable tariffs (10–20%), and tame inflation (2.5–3%), US banks are operating in a highly supportive environment in 2025. Net interest margins are being preserved, credit demand is picking up, and the sector’s domestic focus shields it from global trade tensions.
Add to this a compelling valuation gap (P/E ratios of 10–12x vs. 20–25x for the S&P 500) and generous dividend yields (ranging from 1.8% to 4%), and the appeal of the sector becomes clear.
The key beneficiaries of this landscape include:
- Goldman Sachs – a leader in investment banking
- Morgan Stanley – strong across both advisory and wealth management
- Wells Fargo – rebuilding after past scandals
- Bank of America – a domestic powerhouse with a digital edge
- Capital One – expanding in consumer credit
- U.S. Bancorp – offering yield and tech agility
- PNC Financial – well placed in regional growth markets
Product Snapshot
For informational purposes only. Not investment advice.
Insights
May 23, 2025
America’s Banks are Back in Business
A Favourable Economic Backdrop
The 2025 economic outlook is clearly playing in favour of US banks. Following several rate cuts in 2024, the Federal Reserve has now stabilised interest rates between 3.00% and 3.25%. This steady policy supports net interest margins, which currently sit between 2.5% and 3% — a key component of sector profitability.
US economic growth may also exceed expectations, especially as Donald Trump appears unlikely to revert to aggressive tariffs. This easing could support demand for credit in housing, consumer spending and business lending, while helping to reduce the risk of defaults.
Another positive sign is the stabilisation of reserves set aside for potential losses. After surging in 2022–2023, these reserves are now stabilising, giving banks more flexibility to return capital through dividends and share buybacks. Meanwhile, contained inflation (2.5%–3%) is easing cost pressures and bolstering household confidence, a key driver of banking activity.
Limited Exposure to Tariffs
The new tariffs introduced in 2025, ranging from 10% to 20%, mainly target industry and discretionary consumer goods, leaving the banking sector largely untouched. Since more than 80% of Bank of America’s revenue comes from within the United States, the impact is limited.
In fact, these protectionist measures have prompted a wave of industrial reshoring, which in turn is fuelling corporate demand for finance, particularly for investments in equipment, real estate, and infrastructure. Regional banks are especially well positioned to benefit.
Attractive Valuations
Bank stocks currently trade at modest price-to-earnings ratios — around 10 to 12 times for the KBW Bank Index, compared to 20 to 25 times for the S&P 500. This lower valuation reflects lingering recession fears, which have largely eased thanks to recent macroeconomic data.
Dividend yields are also compelling: around 2.5% for JPMorgan, and 3% for Wells Fargo. Share buybacks further enhance shareholder value, supported by solid balance sheets.
Strong Fundamentals, Digital Push
America’s major banks remain on solid financial footing. The Federal Reserve’s 2024 stress tests reaffirmed their resilience, with CET1 capital ratios well above regulatory requirements — JPMorgan, for instance, stands at 12.5%.
Over-reserving in prior years has now been corrected, freeing up capital. At the same time, digitalisation efforts are ongoing, with automation and AI helping to deliver significant cost savings. Bank of America, for instance, has lowered its cost-to-income ratio from 65% to 60% over the past four years.
Upcoming Catalysts
Several factors could continue to support the sector. Potential deregulation under the Trump administration, including a possible loosening of Dodd-Frank or Basel III rules, could encourage a new wave of mergers and acquisitions, particularly among regional banks such as PNC Financial.
A revival in IPOs and corporate deals is also benefiting investment banks such as Goldman Sachs and Morgan Stanley. And amid ongoing geopolitical uncertainty from Ukraine and Taiwan to the Middle East, banking stocks are regaining favour as a defensive play.
WHO STANDS TO GAIN?
With stable interest rates (3.00–3.25%), manageable tariffs (10–20%), and tame inflation (2.5–3%), US banks are operating in a highly supportive environment in 2025. Net interest margins are being preserved, credit demand is picking up, and the sector’s domestic focus shields it from global trade tensions.
Add to this a compelling valuation gap (P/E ratios of 10–12x vs. 20–25x for the S&P 500) and generous dividend yields (ranging from 1.8% to 4%), and the appeal of the sector becomes clear.
The key beneficiaries of this landscape include:
- Goldman Sachs – a leader in investment banking
- Morgan Stanley – strong across both advisory and wealth management
- Wells Fargo – rebuilding after past scandals
- Bank of America – a domestic powerhouse with a digital edge
- Capital One – expanding in consumer credit
- U.S. Bancorp – offering yield and tech agility
- PNC Financial – well placed in regional growth markets
Product Snapshot
For informational purposes only. Not investment advice.