Three US Banks Positioned for the Rate and Capital Markets Recovery

Bank of America is the most interest rate-sensitive of the big four US banks, and that sensitivity has been a curse for three years as the inverted yield curve compressed net interest margins. Revenue hit $109.4 billion in FY2025 — massive in absolute terms but largely flat versus prior years as NIM compression offset loan growth.

Here's what's changing. The yield curve has normalised, with the 10-year Treasury back above the 2-year. BAC's asset-sensitive balance sheet — $600 billion in fixed-rate securities repricing over the next 2-3 years — means net interest income could expand by $3-5 billion annually as those low-yielding bonds mature and get reinvested at current rates.

At 12.3x forward earnings with a 2.4% dividend yield, BAC is cheap by its own historical standards. The consensus target implies 20% upside. Our view: BAC is the best pure play on a normalising rate environment, and the NIM expansion over the next eight quarters could drive a re-rating toward 14-15x earnings.

JPMorgan is the standard against which every other bank is measured, and the stock's valuation reflects it. At 12.7x forward earnings, JPM trades at a persistent premium to BAC and GS — and it deserves every basis point of it.

Revenue reached $180.6 billion in FY2025. Net income was $54.2 billion. Return on tangible common equity hit 21% — a number most banks can only dream of. Jamie Dimon has built a fortress that generates returns through every environment: rising rates, falling rates, strong markets, weak markets.

The investment banking franchise is particularly well-positioned for the expected M&A recovery. JPM's advisory pipeline — measured by announced-but-not-yet-closed transactions — reportedly doubled in Q4 2025 versus the same period a year ago. When that pipeline converts, it flows directly to the bottom line at near-100% incremental margins.

Our view: JPM at 12.7x is fairly valued for what it is today, but the M&A and IPO recovery could push earnings to $60+ billion in FY2026, making the current multiple look cheap in hindsight. Target: $280-$300 over 12 months.

Goldman is the most volatile of the three and the most leveraged to capital markets activity. Revenue was $53.5 billion in FY2025 — respectable but well below the $59 billion peak in FY2021 when trading and underwriting activity was at historic highs.

The David Solomon pivot toward asset management and wealth management has partially de-risked the revenue mix. Marcus — the consumer banking experiment — was wound down, and the $2.7 billion loss it generated has been excised from the P&L. Asset and wealth management now contributes roughly 40% of revenue versus 25% five years ago.

At 13.8x forward earnings, Goldman trades at a slim premium to BAC and a slight discount to JPM. The bull case is simple: if capital markets activity normalises to 2021 levels — with IPO and M&A volumes recovering from a multi-year trough — Goldman's investment banking revenue could expand by $4-5 billion, adding $3+ to EPS. At 13.8x, the market is paying nothing for that upside.

Our view: Goldman is the highest-beta play on the capital markets recovery. Target: $600-$650, representing 25-30% upside if the IB pipeline converts.