Bank Sector Earnings: Valuation Trends and Market Expectations
The largest U.S. banks currently trade at a significant discount to the broader market, with the Invesco KBW Bank ETF (KBWB) holding a forward price-to-earnings (P/E) ratio of 12.4—just 61% of the S&P 500’s valuation of 20.4, according to FactSet data.
Valuation Shifts in the Banking Sector
Historically, bank stocks often trade at a discount compared to the wider U.S. stock market. Since the end of 2011, the KBW Bank ETF has maintained an average valuation of 67% relative to the State Street SPDR S&P 500 ETF (SPY). This relationship reached a low of 39% in May 2023, suggesting that while valuations have recovered, the sector remains relatively inexpensive by historical standards.
Investors evaluating these stocks often look at the forward P/E ratio, which compares a stock’s price to consensus 12-month earnings-per-share estimates. Among the “Big Six” banks—JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—Citigroup stands out for having one of the lowest forward P/E ratios in the group, despite recent price gains.
Pro Tip: When analyzing bank performance, look beyond the headline earnings.
Impact of Interest Rates and Loan Growth
Ebrahim Poonawala, head of research for North American banks at BofA Securities, notes that loan growth remains strong across the industry. However, this positive momentum faces headwinds from intense competition for deposits. Because banks must pay more to attract and retain customer deposits, their net interest margins—the spread between what they earn on loans and pay for funding—are under pressure. The “higher-for-longer” interest-rate environment continues to dictate market sentiment. Current expectations have shifted to a “neutral” stance, complicating the outlook for margin expansion.
Investment Banking and Cycle Concerns
High levels of merger and acquisition activity, alongside a steady pipeline of initial public offerings, have bolstered investment-banking revenue. While this has been a boon for the largest firms, some analysts warn that the industry may be nearing a cyclical peak.
On June 30, Oppenheimer analyst Chris Kotowski downgraded Goldman Sachs and Morgan Stanley to “underperform,” while lowering Bank of America and Citigroup to “perform.” Kotowski argued that these firms are entering the “later part of the cycle.” He suggested that investors might find more stability in commercial banks like U.S. Bancorp (USB) and PNC (PNC), noting that the commercial banking expansionary cycle remains in its earlier stages.
Comparative EPS Estimates for Top Banks
FactSet consensus estimates indicate that while most banks are expected to show year-over-year earnings-per-share (EPS) growth, the sequential outlook is more mixed. Seven of the largest banks, including JPMorgan, Citi, Goldman, and Morgan Stanley, are projected to show sequential EPS declines for the second quarter.
| Bank | Est. Q2 EPS | Q1 EPS | Q2 2025 EPS |
| :— | :— | :— | :— |
| JPMorgan Chase | $5.58 | $5.94 | $5.24 |
| Bank of America | $1.13 | $1.11 | $0.89 |
| Citigroup | $2.74 | $3.06 | $1.96 |
| Wells Fargo | $1.72 | $1.60 | $1.60 |
| Goldman Sachs | $14.47 | $17.55 | $10.91 |
Did you know? Banks do not calculate their reported net interest margins (NIM) in a consistent manner. FactSet provides uniform calculations to allow investors to compare margin trends across the industry more accurately.
Frequently Asked Questions
Why are big banks trading at a discount to the S&P 500? Historically, banks trade at lower forward P/E ratios than the broader market due to their sensitivity to economic cycles and interest-rate fluctuations.
What is the biggest challenge for banks in the current interest-rate environment? The primary challenge is intense competition for deposits, which forces banks to increase the interest they pay to customers, potentially tightening their net interest margins.
Are investment banks reaching a revenue peak? Some analysts, such as Chris Kotowski of Oppenheimer, suggest the investment-banking industry is moving into the later stages of its current growth cycle, prompting a shift toward more stable, commercial-focused banking institutions.
Where can I find more information on bank performance? Always conduct your own research before making investment decisions.*
