ZACKS·2025-11-26 08:01Core Viewpoint - The article discusses the potential benefits for Bank of America (BAC) and Wells Fargo (WFC) as interest rates decline, highlighting which bank may present a better investment opportunity in the current economic environment [2][18]. Group 1: Bank of America (BAC) - BAC is highly sensitive to interest rate changes and is focusing on organic domestic growth through physical and digital expansion [4][6]. - 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% [5]. - With the Federal Reserve initiating a rate cut cycle, BAC expects net interest income (NII) to grow by 5-7% in 2026, following similar growth in the current year [6][8]. - BAC plans to open more than 150 financial centers by 2027 to enhance customer relationships and capitalize on digital tools, supporting NII growth [7]. - The investment banking sector of BAC is positioned for growth as deal-making activities recover, targeting mid-single-digit compound annual growth rate (CAGR) in investment banking fees [8]. Group 2: Wells Fargo (WFC) - WFC is expanding across multiple business lines following the lifting of its asset cap, focusing on deposit growth and targeted loan expansion [9][11]. - The bank anticipates that interest rate cuts will stabilize funding costs and drive increased lending activity, which will help it gain market share in fee-generating businesses [10][13]. - WFC expects stable NII for 2025, with lower rates supporting a rebound in loan origination and reduced deposit pricing pressures [12]. - The bank's strategy emphasizes organic growth and competitive deposit acquisition while cautiously increasing lending amid economic uncertainty [13]. Group 3: Comparative Analysis - In terms of stock performance, BAC and WFC have gained 18.2% and 20.4% respectively in 2025, with WFC showing stronger investor sentiment [14]. - Valuation metrics indicate BAC is trading at a forward price-to-earnings (P/E) ratio of 12.11X, while WFC is at 12.31X, both below the industry average of 13.93X, suggesting BAC is relatively inexpensive [15]. - BAC has a dividend yield of 2.16%, slightly higher than WFC's 2.13%, both exceeding the S&P 500 average of 1.52% [15]. - Return on equity (ROE) for BAC is 10.76%, lower than WFC's 12.51%, indicating WFC is more efficient in utilizing shareholder funds [16]. - The Zacks Consensus Estimate projects BAC's revenue growth of 7.2% and 5.7% for 2025 and 2026, respectively, while WFC's revenue growth is expected to be 2.1% and 5.4% for the same years [17].