Which Big Bank Stock is Set to Gain More From Rate Cuts: BAC or WFC?

Core Insights - Falling interest rates are reshaping the outlook for major U.S. lenders, with Bank of America (BAC) and Wells Fargo (WFC) being closely monitored for potential benefits from monetary easing [1][11] Bank of America (BAC) - BAC is focusing on organic domestic growth through the expansion of its physical and digital presence, with a medium-term plan emphasizing sustainable growth, digital scale, cost discipline, and capital efficiency [3][5] - The bank aims for over 12% earnings growth and a return on tangible common equity (ROTCE) between 16% and 18% over the next three to five years, while maintaining a Common Equity Tier 1 ratio of 10.5% [4] - With the Federal Reserve initiating a rate cut cycle, BAC is expected to benefit from fixed-rate asset repricing, higher loan and deposit balances, and a gradual decline in funding costs, projecting net interest income (NII) growth of 5-7% in 2026 [5][11] - BAC plans to expand its financial center network by opening more than 150 centers by 2027, which, along with digital tool adoption, will support NII growth and cross-sell opportunities [6] - The investment banking (IB) business is positioned for growth as deal-making activities resume, targeting mid-single-digit CAGR in IB fees over the medium term [7] Wells Fargo (WFC) - WFC is expanding across multiple business lines following the lifting of its asset cap, focusing on deposit growth, targeted loan expansion, and product investment as funding costs decrease [8][10] - The bank aims to benefit from a softer rate environment, which is expected to increase lending activity, stabilize net interest margins (NIM), and enhance market share in fee-generating businesses [9][12] - WFC's strategy includes prioritizing organic growth, competing for deposits, and selectively increasing lending while remaining cautious during economic uncertainty, which is expected to improve profitability and margin resilience [13] - Management anticipates stable NII in 2025, leveraging an expanded balance sheet to grow fee-rich franchises [12] Performance and Valuation Comparison - Year-to-date, shares of BAC and WFC have increased by 18.2% and 20.4%, respectively [14] - BAC is trading at a 12-month forward price-to-earnings (P/E) of 12.11X, while WFC is at 12.31X, both below the industry average of 13.93X [15][16] - BAC's dividend yield is 2.16%, slightly higher than WFC's 2.13%, both exceeding the S&P 500 average of 1.52% [16] - BAC's return on equity (ROE) is 10.76%, lower than WFC's 12.51%, indicating WFC's more efficient use of shareholder funds [19] Growth Estimates - The Zacks Consensus Estimate for BAC's revenue growth is projected at 7.2% for 2025 and 5.7% for 2026, with earnings expected to rise by 15.6% and 14.5% for the same years [21] - In contrast, WFC's revenue growth estimates are 2.1% for 2025 and 5.4% for 2026, with earnings growth projected at 17% and 10.8% [22] Investment Outlook - While both banks benefit from falling rates, BAC's scale-driven efficiency, branch expansion, and digital growth strategy position it favorably to capture increased lending activity [25] - BAC's clearer earnings trajectory and stronger NII growth prospects make it a more compelling investment choice compared to WFC [26]