As big banks kick off earnings season, these are the critical numbers to watch

By Philip van Doorn

Expectations are building for the largest U.S. banks to set higher performance targets as regulators take a lighter approach to industry supervision

Among the largest six U.S. banks, these three have three things in common that might make them the more compelling stock-market plays for 2026.

The largest U.S. banks will begin corporate earnings season this week, with JPMorgan Chase reporting its fourth-quarter results on Tuesday. Bank of America, Citigroup and Wells Fargo will follow on Wednesday. Goldman Sachs and Morgan Stanley will report on Thursday.

Every earnings season, investors should expect the majority of companies in the S&P 500 SPX to report profits that come in ahead of analysts' consensus estimates. This maintains the decades-old "beat and raise" pattern, which is the upward revision of earnings-per-share estimates that can support higher share prices over time.

However, this is when banks set their own targets for returns on tangible common equity (ROTCE), which can spark the stock beyond the typical quarterly pattern. A bank's ROTCE is its return on equity, with preferred stock and intangibles such as loan servicing rights and deferred tax assets excluded.

For large U.S. banks, the Federal Reserve's annual stress tests are used by the regulator to set minimum capital ratios. So a bank has a balancing act as it tries to earn as much as possible while meeting the regulator's risk-based capital requirement.

With capital levels above the required minimums, banks have been raising dividend payouts annually and continuing to buy back their own shares. This deployment of capital boosts ROTCE and the buybacks can lower share counts and boost earnings per share.

It's target time

In his team's "Guide to Navigating Bank Stocks in 2026," Ebrahim Poonawala, the head of research for North American Banks at BofA Securities, recommended investors have "exposure to strengthening capital markets" (at least through 1Q26)" at least through the first quarter of 2026.

Since we are already in the first quarter, that is a short period for a long-term investor. When asked about that time frame by MarketWatch, Poonawala pointed out that Goldman Sachs's (GS) stock had already shown a significant gain for 2026. The stock was up 6.4% year-to-date through Thursday.

"The question is, are we at peak earnings and peak multiples for these capital-markets names?" Poonawala asked.

For long-term investors, he said it would be important to look at the banks' ROTCE targets. Most have had the same targets in place since early last year, although Wells Fargo (WFC) Chief Executive Charles Scharf increased the bank's ROTCE target to a range of 17% to 18% from the previous target of 15%.

Regulators lifted restrictions on Wells Fargo's growth in June, after the bank addressed various operational problems and addressed regulators' concerns about risk management and corporate governance. "Now it is about execution and the street feeling management can do the balancing act of capturing outsized growth relative to money-center peers and improve ROTCE," Poonawala said.

Here are the largest six U.S. banks sorted by total assets, along with their current ROTCE targets and actual annualized ROTCE results for the first three quarters of 2025, as calculated by FactSet:

   Bank                         ROTCE target  ROTCE - First three quarters of 2025  ROTCE - 2024 
   JPMorgan Chase & Co.                  17%                                20.48%        22.13% 
   Bank of America Corp.          16% to 18%                                13.84%        12.85% 
   Citigroup Inc.                 10% to 11%                                 7.88%         6.91% 
   Wells Fargo & Co.              17% to 18%                                14.37%        13.46% 
   Goldman Sachs Group Inc.      "Mid-teens"                                15.56%        13.48% 
   Morgan Stanley                        20%                                21.04%        18.53% 
                                                                                 Source: FactSet 

JPMorgan Chase (JPM) and Morgan Stanley were well ahead of their ROTCE targets through the first three quarters of 2025, while Goldman was right in the middle of its target range.

This left Bank of America (BAC), Citi (C) and Wells Fargo appearing positioned to show the most improvement over the next year or two. If you think it is a bit of a stretch to expect significant improvement for these three banks based on the ROTCE targets, consider that the banks' management teams aren't trying to set themselves up to miss their own targets.

The stocks' valuations

Let's take a look at two valuation measures while leaving the six banks in the same order. The price/tangible book ratios are Friday's closing share prices divided by tangible book value per share, based on Sept. 30 reports. The forward price/earnings ratios are Friday's prices divided by consensus earnings-per-share estimates for the next 12 months, among analysts working for brokerage and research firms polled by FactSet:

   Bank                         Price/ tangible book value  Forward P/E 
   JPMorgan Chase & Co.                                3.1         15.6 
   Bank of America Corp.                               2.0         12.7 
   Citigroup Inc.                                      1.3         11.9 
   Wells Fargo & Co.                                   2.2         13.6 
   Goldman Sachs Group Inc.                            2.8         16.7 
   Morgan Stanley                                      3.8         17.3 
                                                        Source: FactSet 

Getting back to Poonawala's comments about rising valuation ratios for the banks, JPMorgan Chase is now trading above three times tangible book value, second only to Morgan Stanley, with a price/TBV of 3.8. These two also have the highest forward P/E ratios among the group. Being in the lead makes sense as these have achieved the highest recent ROTCE.

All of these forward P/E ratios are well below that of the S&P 500 SPX, which trades at a weighted forward P/E of 22.5 - but it's typical for banks to trade at forward P/E valuations well below that of the S&P 500.

JPMorgan Chase's forward P/E valuation is 69% that of the S&P 500. That is in keeping with the KBW Nasdaq Bank Index's BKX long-term P/E valuation of 69% relative to that of the S&P 500, according to analysts at Keefe, Bruyette & Woods.

Poonawala didn't think we are at peak valuations for the big banks yet. "We see room for upward revision on the capital-markets side," he said.

Matt Stucky, chief portfolio manager at Northwestern Mutual Wealth Management, said the above valuation ratios weren't very high "from an earnings perspective." He told MarketWatch that "in rising cycles" for the banks, such as the current one, investors focus on P/E multiples. "In a down cycle, you look at price-to-book."

Then again, Citi stands out in this group by trading just above tangible book value and at the lowest forward P/E. The bank has scheduled its 2026 Investor Day for May 7, "with expectations to guide ROTCE to 12% to 13%," according to Stucky.

"A lot of other investors are excited by Citigroup," Stucky said. He added that the bank "has gotten better by getting smaller," shedding less profitable units under the watch of Jane Fraser, who has been Citi's chief executive since 2021.

"So Citigroup has been the value, momentum and recovery story. That should continue this year," he said

Now let's look at one more data summary that brings the ROTCE targets, valuations and analysts' opinions together:

   Bank                         Jan. 9 price  Consensus price target  Implied 12-month upside potential  Share "buy" ratings 
   JPMorgan Chase & Co.              $329.19                 $343.95                                 4%                  56% 
   Bank of America Corp.              $55.85                  $62.31                                12%                  78% 
   Citigroup Inc.                    $121.32                 $133.71                                10%                  79% 
   Wells Fargo & Co.                  $95.95                 $103.00                                 7%                  59% 
   Goldman Sachs Group Inc.          $938.98                 $902.23                                -4%                  34% 
   Morgan Stanley                    $186.32                 $187.91                                 1%                  41% 
                                                                                                             Source: FactSet 

The three banks showing the most room for improvement, based on ROTCE results and the banks' own ROTCE targets (Bank of America, Citi and Wells Fargo), are also trading at the lowest P/B and P/E valuations. They also have the highest percentages of "buy" ratings and the most aggressive consensus price targets.

Keep in mind that the consensus price targets are essentially one-year targets. Even that might be considered a short period if the banks' upcycle continues. And, given the lighter regulatory environment for the banks under the second Trump administration, there can be several catalysts for the stocks.

These include the aforementioned capital-markets activity, with increasing investment-banking activity, along with healthy fee generation for the banks' wealth-management businesses.

Poonawala credited Morgan Stanley's long-term focus on growing its wealth management business for its high ROTCE and high valuations.

For Goldman Sachs, capital markets revenue was making up 70% to 75% of total revenue, and the bank was "accruing that benefit" under the "shift to a more balanced regulatory backdrop," he said.

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