KBW praises Citi's value, Goldman's revenue upside and Bank of America's expected net interest income growth.

Citigroup Inc., Bank of America Corp. and Goldman Sachs Group Inc. offer different paths to the same outperform rating at KBW, analysts said as they surveyed a mostly-improved landscape for banks in 2025.

Three key themes for 2025 include a revival in merger activity for banks, a rebound in capital markets activity after one of the slowest periods in decades and growth in net interest income, which is the profit banks make on loans after paying out interest for customer deposits.

Citigroup (C) stands out as a value play given that its stock has been trading at about 80% of total book value, which is about 5% below historical averages, KBW said.

It also offers upside on its revenue growth, if bank deal-making rises as expected in the coming year.

Bank of America (BAC) and smaller financial firm KeyCorp (KEY) offer net interest income growth of 37% and 75% respectively over the coming 24 months as headliners among KBW's "growth ideas" for investors.

Goldman Sachs (GS) "has the most revenue upside" given the increased momentum of capital markets expected with the incoming Trump administration's focus on deregulation and the Fed's actions to keep inflation in check by lowering rates.

Another sparkler for KBW is State Street Corp. (STT)

"Although State Street does not have meaningful direct capital markets exposure outside foreign exchange, it does have market-sensitive revenues in asset management and custody from global equity values" as among banks offering upside revenue, analyst David Konrad said.

While KBW maintains a market-weight, or neutral rating on the banking sector, it sees "pockets of outsized relative value" within the sector, particularly the largest U.S. banks, and banks of $50 billion to $100 billion in assets.

Along with Bank of America, Citi, Goldman Sachs, State Street and KeyCorp, other picks include Western Alliance Bancorp (WAL), SouthState Corp. (SSB), Old National Bancorp (ONB) and UMF Financial (UMBF) among the $50 billion to $100 billion asset-sized banks and Coastal Financial Corp. (CCB) among smaller-to-medium size banks, KBW said.

The KBW Nasdaq Banking Index BKX has risen 32.1% in 2024, while the S&P 500 SPX is up by about 24%.

Also read: Dealmaker sees more urge to merge among smaller banks - yours may be among them

-Steve Gelsi

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