Bank of America makes bold call on bank stocks | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Bank of America Securities starts 2026 with a strong message: Bank stocks can beat the S&P 500 again.

Analysts say this is part of a multi-year run driven by deregulation, a better capital-markets cycle, rising domestic capex, and generally stable credit quality.

BofA’s “Year Ahead 2026” report on U.S. banks said current conditions are more similar to the late 1990s and early 2000s than they were after the global financial crisis, when banks had to deal with lower returns and stricter rules.

The company’s plan is clear: focus on the GSIBs, which are the global systemically important banks that do a lot of business in capital markets. Only buy regionals that can show growth and operating leverage.

BofA has some big ideas for 2026, and you can see them in four of its top buy-rated calls: Citigroup, Wells Fargo, Morgan Stanley, and Goldman Sachs.

Bank of America signals a rethink on bank stocks.

Photo by Oscar Wong on Getty Images

The 2026 scenario offers deals, less regulation, “third year” outperformance

There isn’t just one reason Bank of America feels confident in bank stocks. The firm, on the other hand, sees a number of fundamental drivers coming together simultaneously, which it sees as an extraordinarily supportive backdrop for the sector.

These forces include rules and activity in the capital markets, changes in the balance sheet, and trends in lending. When you put them all together, they help explain why BofA thinks leadership in banking is becoming clearer as we draw closer to 2026.

BofA has a certain view of the sector for a few good reasons:

The company believes the GSIB surcharge, Basel “Endgame,” and $100B asset threshold will continue to make capital more flexible and reduce “arbitrage” between banks and non-banks, according to Moody’s.
BofA expects mergers and acquisitions and initial public offerings to be strong due to strategic investor and sponsor interest and a smooth approval process.
Bank mergers and acquisitions are accelerating. BofA expects additional bank mergers, especially regional banks seeking growth and deposits.
Rate stability is more crucial than cuts. BofA doesn’t automatically dislike “no cuts.” It claims a positively sloped yield curve and lower rate volatility improve net interest margins.
AI isn’t the story about making money in 2026 yet. Banks are betting on AI, but Bank of America doesn’t think it will have a big effect on profits in 2026, even if it becomes a more expensive long-term driver.
Credit quality will likely remain stable. Without a recession, BofA doesn’t expect a huge credit cycle or much improvement. It notes that “one-offs” and specialized exposures may still provide significant risk.

In short, BofA thinks GSIBs will be in charge, and the company’s 2026 single-stock position shows this.

Citi holds the “best risk/reward” of all the big banks

BofA says again that Citigroup is a solid buy and labels it the greatest risk/reward among large-cap banks, thanks to “self-help” and cyclical and regulatory tailwinds.

Price of $122.50 on Jan. 7
Price target of $140 (up from $120)
14.3% upside implied
2026 earnings per share forecast: $10.57
2027 earnings per share forecast: $12.06
Average annual EPS growth (2026-2027): About 25%
Potential catalysts: Share buybacks, operating leverage, and progress toward resolving regulatory consent orders issued in 2020

BofA’s Citi thesis is based on execution and catalysts, such as operating leverage, buybacks, and “de-risking” (which includes getting rid of non-core companies).

It also suggests that Citi may have more freedom and support for its plans as it gets closer to leaving the 2020 Fed and OCC consent orders.

BofA’s own model suggests that EPS will expand by around 25% on average each year from FY26 to FY27, and that returns will get better (it shows that ROTCE will improve by about 300 bps from 2025 to 2027, with a path toward low-teens ROTCE in the long term).

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The company also says there is upside optionality if Citi can provide greater margins, stronger operating leverage, or credit costs that are a little lower than the basic expectation.

What might go wrong? BofA lists the traditional risks of a turnaround: execution, macro shock, and regulatory costs. They also mention the possibility that investors won’t believe the change will last.

Wells Fargo: post-asset-cap “coming of age,” possibly second half

In large-cap banking, Bank of America is most optimistic about one stock, but for different reasons than in previous cycles. The company sees an improving situation both internally and externally.

BofA does not solely concentrate on macroeconomic factors; instead, analysts present this situation as a narrative where effective execution aligns with available opportunities. In their opinion, the consequence is a risk-reward profile that stands out even among the biggest banks in the U.S. as we approach 2026.

Price on Jan. 7: $96.39
The price target is $107, up from $100.
11.0% upside implied
2026 EPS forecast: $7.07
2027 EPS forecast: $8.21
Implied average annual EPS growth: About 15%
Return outlook: About 17% return on tangible common equity by 2027, rising toward 18% in 2028

BofA’s main point is that the removal of the asset cap allows Wells to finally pursue better growth and higher productivity. BofA thinks this should eventually lead to a re-rating.

But there’s a key difference: BofA predicts that stocks could do better in the second half of 2026 because it prefers to own GSIBs that are heavy in capital markets early in the year and thinks that rate reduction (in its prediction) will generate some short-term NII friction. The company still sees stable balance sheet growth, capital flexibility, and efficiency advantages as long-term benefits.

What may happen that would be bad? A larger decline could lead to credit losses, increased costs, or extended wait times for resolving the outstanding consent orders.

“Best of both worlds” with wealth and capital markets: Morgan Stanley

Bank of America thinks that one large-cap bank is especially well-suited for the next phase of the cycle. This is not because of one thing, but because of how its business is set up. The company thinks that this setup is become harder and harder for other companies to copy.

Instead of just counting on a market bounce, BofA sees this as a story about balance. It is confident going into 2026 because it has access to many sources of income and is flexible with its capital.

BofA says again that Morgan Stanley is a good buy and calls the company “hard to replicate” because it has a strong U.S. wealth business and a worldwide capital markets platform.

Price (Jan. 7): $186.54
Price objective: $210 (raised from $180)
Implied upside: 12.6%
2026 EPS forecast: $10.95
2027 EPS forecast: $12.18
Valuation basis: About 19 times 2026 earnings and nearly four times tangible book value
Upside drivers including capital deployment, advisory recovery, and wealth management synergies

BofA thinks MS will benefit from the same macroeconomic trends that are helping the group as a whole, such as the momentum of mergers and acquisitions and a more friendly regulatory tone. However, analysts stress something else: the possibility of synergies within the integrated franchise (wealth + institutional) and an improving capital position.

The company says surplus CET1 might be a lever and that ROTCE could rise into the low to mid-20s over time if synergies and capital deployment go as planned. However, the timing of this will depend on how much money is spent on investments and how management manages the extra capital.

What might go wrong? A capital market/revenue environment that is significantly weaker, stricter rules, or macro shocks.

Goldman Sachs: the “durability” problem and the benefits if it works out

BofA says again that Goldman Sachs is a good buy and defines the main question for investors as simple.

Will CEO David Solomon keep changing the company into a more stable profitability story without using risky transformative M&A?

Price (Jan. 7): $955.47
Price target: $1,050 (raised from $900)
Implied upside: 9.9%
2026 EPS forecast: $57.30
2027 EPS forecast: $67.30
Expected EPS growth in 2026: About 19%
Target valuation: Roughly 15.6 times forward earnings

BofA says that Goldman has a lot of good things going for it right now, such greater capital markets activity, a regulation change that gives banks more control over capital management, and a company-wide push for productivity called “OneGS.”

The company thinks that EPS growth will speed up (it quotes about 19% for FY26 compared to about 14% for FY25 in its framework) and that profits will become closer to a “normal” level, with a higher ROTCE as the cycle improves and more capital is put to use.

What might go wrong? The biggest risk that Goldman investors always face is a major drop in the stock market that stops the transaction cycle and slows down fee and AWM growth, which hurts both earnings and the multiple.

Bank of America’s “bold call” in plain English

The message from BofA isn’t just “banks are cheap.” It’s more specific.

After years of being limited by the crisis, the sector’s rules are shifting.
The GSIBs will benefit the most from the predicted increase in capital markets activity.
There are clear execution paths for select turnarounds and post-constraint stories, like Citi and Wells.
AI is real, but it doesn’t make money yet. That means that the classic drivers of returns in 2026 are still revenues, costs, capital, and credit.

If BofA’s theory is correct, 2026 might be a favorable year for investors who see banks as a sector in a multi-year re-rating cycle rather than a value trade. GSIBs would lead the way, while a smaller group of regionals would earn their way into outperforming.