2 Major Regional Banks to Buy as Industry Prospects Remain Favorable

Core Viewpoint - The Zacks Major Regional Banks industry is expected to face weak asset quality due to higher inflation from tariffs, but will benefit from lower interest rates, improving net interest income (NII) and margins, and modest economic growth, which should lift loan demand [1][4][5]. Industry Overview - The Zacks Major Regional Banks industry consists of the largest banks in the U.S. by assets, operating globally and heavily influenced by the nation's economic health. These banks provide a wide range of financial services, including traditional banking, credit and debit cards, mortgage banking, wealth management, and investment banking, generating significant revenue from fees and commissions [3]. Key Trends - Lower Interest Rates: The Federal Reserve has begun cutting interest rates, which is expected to stabilize and eventually lower deposit costs, benefiting major regional banks despite initial lower NII and margins [4]. - Modest Rise in Loan Demand: As borrowing costs decline, loan demand is anticipated to improve, with NII and net interest margins expected to rise slightly [5]. - Restructuring Initiatives: Major regional banks are restructuring to reduce dependence on spread income, investing in technology and expanding both domestically and internationally to enhance profitability [6]. Asset Quality Concerns - Economic health concerns and trade policies have raised prices, impacting borrowers' repayment abilities. Banks are building reserves to mitigate potential defaults, although conservative lending strategies have helped maintain manageable asset quality [7]. Industry Ranking and Performance - The Zacks Major Regional Banks industry ranks 52, placing it in the top 22% of over 250 Zacks industries, indicating improving prospects and an encouraging earnings outlook [8][10]. - The industry has underperformed the S&P 500, gaining 9.6% over the past year compared to the S&P 500's 14.6% increase [11]. Valuation Metrics - The industry has a trailing 12-month price-to-tangible book ratio (P/TBV) of 2.50X, significantly lower than the S&P 500's 12.87X, indicating an attractive valuation compared to the broader market [14][16]. Company Highlights - BNY Mellon: Operates in 35 countries, focusing on various financial services. The company has a market cap of $79.8 billion, with a projected earnings growth of 22.1% for 2025. It has been expanding its digital capabilities and launching new services, including a Stablecoin reserves fund [18][22]. - U.S. Bancorp: Headquartered in Minneapolis, it has a market cap of $79.5 billion and is expected to see earnings growth of 14.1% for 2025. The company has been expanding through acquisitions and partnerships, enhancing its fee-based businesses and maintaining a strong capital distribution strategy [24][28].