A stronger lending environment, stable credit and renewed confidence in valuations could set the stage for a multiyear rally on U.S. regional banks, with some analysts predicting up to 20% upside in 2025.
Three major investment banks - JPMorgan Chase & Co.
Overall, analysts at all three firms are optimistic. Goldman Sachs analyst Ryan Nash, for example, highlighted several factors likely to improve sector fundamentals in 2025:
- Loan Growth Recovery: While still slow, loan growth is expected to accelerate to 6%-7% by the second half of 2025 as corporations resume borrowing.
- Net Interest Income Growth: A steeper yield curve and the repricing of fixed-rate assets are anticipated to boost NII. Nash expects margins to expand from the current 3.03% to 3.31% in 2025.
- Fee Income Rebound: Treasury management, payments, and capital markets are set to improve, helping banks diversify revenue streams.
- Stable Credit Conditions: Credit losses, measured by net charge-offs, are projected to remain flat or decline, while reserves could decrease as economic clarity improves.
The sector could generate returns on tangible common equity of 14%-15%, compared to 16% pre-2023.
This suggests the group could rise as much as 20% next year, according to Goldman Sachs, assuming the market gains confidence in forward earnings.
Goldman Sachs: Upgrades Zions, Downgrades Comerica
Goldman Sachs upgraded Zions Bancorp
Goldman downgraded Comerica Inc.
Goldman's top picks for 2025 include Truist Financial Corp.
Analysts remain positive on Fifth Third Bancorp
The Case For Valuation Upside
JPMorgan Chase analysts are similarly bullish, indicating that regional banks are trading at just 1.4x their projected 2025 tangible book value, below the 1.8-2x historical range.
Anthony Elian, a JPMorgan analyst, said regional banks' valuations appear favorable relative to the broader market.
"While inflation remains above target, the steeper yield curve coupled with gradual rate cuts should serve as a favorable backdrop for regional banks," Elian said.
He expects the sector to attract more interest from generalist investors in 2025, further supporting valuations.
JPMorgan identified several regional banks with strong upside potential, including First Horizon Corp.
Improving Regulatory Environment
Bank of America analyst Ebrahim H. Poonawala also indicated that regional banks are poised to outperform the broader market in 2025, citing stronger earnings growth, discounted valuations, and a more predictable regulatory environment.
While Wells Fargo & Co.
The analyst highlighted a favorable backdrop for small- and mid-cap regional banks, particularly those with exposure to rebounding loan demand and capital return opportunities.
Among these, BofA sees First Horizon Corp. and Synovus as potentially strong performers.
Bank of America highlights that looser regulation is a positive tailwind for the sector.
"Headlines tied to regulatory changes (once Trump appointees take charge) could kick-in as a positive catalyst for stocks," Poonawala said.
"We see Fed Vice Chair Michael Barr's decision to step down from his position as vice chair of supervision as the opening act. End to Fed's QT program could also serve as a positive for deposit growth/pricing," he added.
Market Reactions
The SPDR S&P Regional Banking ETF
