Goldman Sachs releases 2025 US banking outlook: Big Bank Q2 profit exceeded expectations by 8%, preferred Bank of America (BAC.US) Wells Fargo (WFC.US) Citibank (C.US)

The Zhitong Finance App learned that Goldman Sachs recently released a 2025 outlook report for the US banking industry. After reviewing the overall performance of the second quarter, it conducted a comprehensive analysis of the performance and future trends of large banks in the second half of 2025. Here, the bank moderately updated relevant expectations and target prices, and listed Bank of America (BAC.US), Wells Fargo (WFC.US), and Citigroup (C.US) as the best-allocated stocks.

The report shows that the core profit of major US banks in the second quarter of 2025 was 8% higher than the VisibleAlpha consensus data, showing a strong overall growth trend. Revenue growth, increased profit margins, and reduced provisions were the main drivers. The bank said that entering the second half of 2025, the market focus is still on the outlook for net interest income (NII) in the second half of 2025 and 2026, the recovery of the capital market, the trading environment, and the timing and scale of return on capital.

In terms of core financial performance, net interest income (NII) became the engine of growth. The report predicts an average NII growth of 5% for large banks in 2025E/2026E, mainly due to improved loan growth and continued repricing of fixed assets. On the loan side, banks emphasized that the loan business is growing strongly, especially in the commercial loan sector. The 2Q25 commercial loan and credit card sectors showed outstanding performance, with increases of 5.2% and 2.8% respectively; on the deposit side, total deposits increased 2% month-on-month (about US$115 billion), and corporate deposits increased 5% month-on-month, partially offsetting the 1% month-on-month decline in consumer deposits.

Capital management and regulatory reforms are a key focus. The return on capital is expected to increase by 30% in 2025, which is above the historical average for the first time since 2019. The dividend payout ratio continues to rise. Regulatory reform has significant potential. If fully implemented, the common share Tier 1 capital (CET1) target of large banks may drop by 150 bps, releasing about 115 billion US dollars of excess capital

Performance differentiation in business segments. Trading activity remained steady, with trading revenue in 2020-24 25% higher than the 2011-19 average; investment banking business gradually recovered, and consulting and equity capital market (ECM) revenue increased significantly.

Cost control and efficiency optimization have achieved remarkable results. Expenses for large banks in 2025E are expected to increase by 4.5%, which is lower than revenue growth to achieve operating leverage. The efficiency ratio continues to improve, and 2027E will fall to its lowest level since 2016. Effective control of personnel costs.

Furthermore, the bank is optimistic about Bank of America (BAC.US), Wells Fargo (WFC.US), and Citigroup (C.US), which are rated as “buy,” and listed them as the best-allocated stocks.

Bank of America (purchase, included in the list of key recommendations): Goldman Sachs remains optimistic about Bank of America's net income trend until 2026. The bank expects Bank of America's net revenue to increase 7% year-on-year in 2025/2026, which is about 1 percentage point/3 percentage point higher than the average of large banks, respectively, which means there is 1% upside compared to the 2026 net interest income consensus forecast.

According to the bank, this increase was due to a combination of the following factors: 1) the year-on-year growth rate of loans and deposits in 2025 was about 2 percentage points higher than the average of peers; 2) value added due to repricing of fixed interest rate assets; and 3) deposit repricing performance was better than expected.

Furthermore, the bank expects the company to further strengthen cost control to achieve multi-year operating leverage; Bank of America fees are expected to increase by about 4% year on year, but part of the increase is driven by strong capital market revenue. The bank believes that Bank of America's return on capital has room to rise because it is one of the main beneficiaries of regulatory capital reforms.

Looking at the bank's expected average return on common shareholders (ROTCE) of about 15%, Bank of America's current projected net market ratio for 2026, which is about 1.5 times higher, is attractive.

Wells Fargo (buy): Goldman Sachs reaffirms its optimistic outlook on Wells Fargo's unique upward profit margin. The lifting of the asset cap (the bank has assessed its impact in the report) will bring multiple benefits:

1) Reclaim lost deposit market share through reinvestment and use these funds to support the growth of traditional banking businesses, that is, to support the growth of loans and securities portfolios; 2) incremental growth in trading business. Expanding the low-risk weighted asset business, such as repurchase agreements, will support Wells Fargo's broader capital market business growth; 3) As investment in risk and control areas slows, and Wells Fargo plans to remove duplicated technology systems, specific cost savings will be realized at an accelerated pace.

Overall, the bank believes that it is possible to achieve an average return on common shareholders of about 17% in 2026, which will bring room for an increase in earnings per share of 14%-19%, or an increase in the average return for common shareholders by 200-280 basis points.

Citigroup (purchase): The bank believes that Citigroup's strong performance in the second quarter of 2025 shows its continued investment and execution, and the company assures the market that it is still expected to achieve the medium term average return to common shareholders (ROTCE) target.

Citigroup is using three major driving forces to drive excess growth over the next three years, making the bank's 2025/2026/2027 earnings per share (EPS) expectations 2%/8%/11% higher than the VisibleAlpha consensus forecast, respectively. The average return for common shareholders is expected to reach 10.6% in 2026, at the midpoint of its updated 10-11% guidance range, 60 basis points higher than consensus expectations. For this stock, which currently has the lowest net market ratio (P/TBV) among large banks, these factors should drive the stock price upward.

The three driving forces are: 1) With the steady increase in handling fees in the service business, revenue is expected to achieve a compound annual growth rate of 4.5%. The business will grow based on its global layout and increased market share in the capital market business. The bank notes that even considering the historical seasonal factors of market business, if the trading business continues to benefit from increased treasury bond trading activity brought about by market volatility and tariff-related uncertainty, the revised revenue guidelines for 2025 may still be conservative.

2) Increased efficiency of various business lines, cost savings due to simplified organizational structures, and reduction of idle costs. 3) Release capital through strategic asset divestments to return capital to shareholders.

The bank believes that Citigroup can achieve revenue growth while achieving cost reduction targets, and given its low valuation, Citigroup may be the main beneficiary of potential regulatory capital reforms, so there is significant room for stock repurchases and/or balance sheet expansion.