Banking Stocks to Buy Now as Profits Reach New Highs

Banking stocks have made a strong comeback in recent times. Near the close of January 2026, Deutsche Bank, the German lender that has faced ongoing challenges, informed investors about achieving record profits throughout 2025 while exceeding management's long-term profitability goals in its trading

Banking stocks have made a strong comeback in recent times. Near the close of January 2026, Deutsche Bank, the German lender that has faced ongoing challenges, informed investors about achieving record profits throughout 2025 while exceeding management's long-term profitability goals in its trading performance.

This achievement marked a significant milestone not just for the institution itself but also for the entire global banking industry as a whole. Financial institutions as a group delivered a total shareholder return amounting to 30.2 percent during the previous year, based on the most recent analysis from the Boston Consulting Group, surpassing both the information technology sector and every other primary industry category. Nevertheless, the majority of financial institutions continue to be valued at approximately a 40 percent discount relative to the broader market averages.

Deutsche Bank serves as a prime illustration of the various challenges that have impacted the banking sector across the last two decades. Prior to 2007 the bank pursued aggressive expansion strategies and rose to become one of the most prominent financial players worldwide, only to experience rapid deterioration during the financial crisis period. Although it managed to avoid receiving a direct bailout from the German government at the outset, it depended substantially on emergency funding provided by the US Federal Reserve in order to maintain operations during that difficult time.

Big banking stocks get a lift from tailwinds

Deutsche Bank is far from being the sole global lender that has witnessed a notable increase in profitability levels over the course of the past several years. The banking sector in its entirety has been posting some of the strongest profit and earnings results seen since the period preceding the financial crisis, allowing shareholders to benefit substantially from these positive developments.

Metro Bank in the United Kingdom represents another clear example of this trend. The institution came perilously close to failure back in 2023 prior to obtaining a rescue refinancing package and has dedicated the subsequent three years to refocusing its core operations. During the first quarter it announced a record level of income generation, achieving a return on tangible equity measuring 6.4 percent, with management aiming to elevate that figure to 18 percent by the year 2028.

Although Metro Bank and Deutsche Bank differ considerably in their structures and operations, both entities are capitalizing on identical underlying market trends that are providing substantial tailwinds for banking stocks across the board. In its most recent earnings report, Metro highlighted a 22 percent increase in net interest income, with its net interest margin, which serves as an indicator of lending profitability, registering at 3.17 percent. Lending activities directed toward small businesses experienced a remarkable 67 percent rise, while the bank simultaneously achieved a 7 percent reduction in overall costs. Major financial institutions everywhere are implementing significant cost-cutting measures as they integrate and adopt artificial intelligence technologies. Data from US employment statistics reveals that payroll numbers in the financial services and information technology sectors have decreased by an average of 28,000 positions per month throughout 2026 due to the accelerating pace of AI adoption.

US banks including JPMorgan Chase, Citigroup and Goldman Sachs have all indicated their intentions to leverage AI capabilities in order to assist employees with processing greater volumes of data, a shift that is expected to result in workforce reductions. Standard Chartered announced during May that it would eliminate more than 7,000 positions over the following four years as the bank speeds up its implementation of artificial intelligence solutions. Morgan Stanley has likewise stated that it plans to reduce its workforce by 3 percent as AI assumes responsibility for additional tasks.

Banks reap the benefits of higher interest rates

Reduced operational costs represent merely one component of the overall picture for banking stocks. These institutions have additionally been positioned to capitalize on the elevated interest-rate environment that has prevailed over the past five years. Fundamentally, banking revolves around the extent to which lenders can generate earnings from the difference between deposits collected from savers and the funds they extend as loans to either businesses or individual consumers. This difference between the cost of capital and the interest income received is referred to as the net interest margin, which stands as one of the most critical performance indicators within the banking industry. The global bank net interest margin stood at 1.65 percent during 2024 and 1.63 percent in 2025, according to McKinsey's 2026 Global Banking Annual Review. Even though the worldwide rate experienced a slight decline, the margin within the United States increased by nine basis points, with Japan seeing a seven basis point rise and the United Kingdom recording a six basis point improvement.

Banking stocks continue to benefit from the effects of elevated interest rates even as central banks globally have begun lowering rates from the peak levels observed in the years immediately following the pandemic. Most banks obtain funding through short-term lending markets before extending loans over extended timeframes to consumers or businesses. This approach assists in risk management and implies that interest-rate adjustments require time to fully propagate through the financial system. Banks also maximize the advantages of structural hedges by utilizing stable low- or zero-rate customer deposits as long-term funding sources while executing interest-rate swaps to transform floating rate exposure into fixed yield arrangements.

For instance, Lloyds Bank, the United Kingdom's largest mortgage lender, reported a net interest margin of 2.95 percent in 2024, followed by 3.06 percent in 2025, and then 3.17 percent during the initial three months of 2026. The company has succeeded in earning higher returns despite interest rates having declined from a peak of 5.25 percent in the early months of 2024 down to the current level of 3.75 percent, as consumers have transitioned away from long-term fixed mortgages carrying lower rates and have been required to secure new fixes at elevated rates.

Cost efficiencies combined with higher interest rates have supported banking stocks, yet the broader economic environment has also played a contributing role. Despite widespread concerns that elevated rates globally might trigger an increase in defaults as companies grappled with higher debt servicing costs, the actual results have proven quite different. All six major US banks that have released results to date have lowered the provisions they set aside to cover potential bad loans. Goldman Sachs recorded a 73 percent reduction compared to the same period in the prior year, Morgan Stanley decreased its credit provisions by 50 percent, while Bank of America, JPMorgan, Citigroup and Wells Fargo each reduced their provisions by between 9 percent and 14 percent.

Concurrently, demand for loans has been rising. A robust economic recovery in the United States has stimulated demand for both business and consumer borrowing. Analysis performed by Fitch Ratings on the results of major US lenders determined that commercial loan growth has now surpassed 7 percent year over year for 14 consecutive weeks. All of the largest lenders reported double-digit loan growth during the second quarter, and certain smaller banks have recorded the strongest growth figures since 2012. Within the United Kingdom demand has also strengthened despite ongoing cost-of-living challenges. Across Europe, the need for loans and credit facilities has increased in every quarter since the second quarter of 2024, with the exception of the first quarter of 2026, according to information from the European Central Bank. During the second quarter of the year, overall loan requirements grew by 3 percent.

Record highs for stock trading and deals

Strong global equity markets have further assisted the world's largest investment banks in reporting increased trading revenue during the current year. Bank of America achieved a record 3.6 billion dollars in equity trading revenue throughout the second quarter of 2026, representing a 70 percent increase, along with 3.5 billion dollars in fixed-income trading revenue. Goldman Sachs posted a record 7.2 billion dollars in equity trading revenue for the quarter, marking a 72 percent rise from the previous year. JPMorgan Chase's equities trading operations delivered an 86 percent gain reaching 6 billion dollars.

These figures follow on from a record-setting 2025. Banks generated 271 billion dollars of revenues from global markets last year, according to strategic benchmarking firm BCG Expand. That total exceeded their 2009 figure by 11 billion dollars, representing the highest level observed in recent memory. The five largest US banks collectively generated 134 billion dollars of revenues from markets during the previous year, which was 16 percent higher than 2024 levels.

As trading activity expands, deal makers are also generating substantial income for these major financial institutions. Approximately 1.7 trillion dollars worth of deals have been announced so far this year, according to data compiled by Bloomberg excluding the SpaceX combination with xAI. This pace represents the fastest seen since 2021, which marked the high point of recent decades. Goldman Sachs has established a clear leadership position. The Wall Street institution has provided advisory services on more than 1 trillion dollars of mergers and acquisitions activity already this year, based on Dealogic data. Examples of transactions the bank has assisted with include Unilever's 44.8 billion dollar sale of its food business to McCormick and Dominion Energy's 118 billion dollar sale to NextEra Energy.

These Wall Street banks typically capture the majority of revenue from global equity trading and investment banking activities, although European banks tend to maintain stronger positions in wealth management, which has also experienced a meaningful increase in profitability, especially among high-net-worth and ultra-high-net-worth individuals. Swiss bank UBS reported an 80 percent increase in net profit for the first quarter of the year thanks to higher income from its investment bank and Global Wealth Management division. Net new assets in Global Wealth Management reached 37.4 billion dollars, equivalent to annualised growth of 3.1 percent in transaction-based income, while the bank's asset-management unit added 14 billion dollars in net new money. Overall, UBS reported 7.1 billion dollars in revenue from global wealth management for the first quarter of 2026, reflecting an 11 percent year-over-year increase. Group invested assets stood at 6.9 trillion dollars at the conclusion of the quarter.

Deutsche Bank has likewise reported strong performance from its asset and wealth-management operations. The bank announced topline net revenue growth of 2 percent for the first three months of the year along with a 7 percent rise in profit before tax. Revenue at the asset-management arm increased by 10 percent and profit before tax rose by 37 percent as assets under management grew by 84 billion euros year over year, accompanied by additional net inflows of 11 billion euros during the quarter. A nearly 4 percent increase in client assets at Deutsche's private bank also contributed to this division's outperformance. Profit before tax at the private bank rose 39 percent overall.

These two institutions maintain a primarily Western orientation. HSBC and Standard Chartered, by contrast, possess stronger reputations for wealth management and investment banking activities in emerging and developing markets such as China and India. Britain's banks have their own distinct attractions. Unlike their counterparts on Wall Street and in Europe, UK banks generally lack extensive operations in wealth management, private client services, investment banking or trading activities. This situation stems from the financial crisis era when institutions such as Royal Bank of Scotland, now known as NatWest, and Lloyds maintained substantial trading businesses along with international operations that were subsequently divested in the aftermath as the lenders concentrated on their fundamental activities of extending loans and accepting deposits from savers.

That said, lenders such as Barclays and HSBC do maintain sizable trading operations, even though they have never achieved the same scale as the major Wall Street firms. Nevertheless, despite their more limited exposure to the Wall Street environment, UK banks possess their own appealing characteristics. According to analysts at Berenberg, banks' rolling structural hedges should secure approximately 50 percent of sector income through to the end of the decade, thereby generating consistent returns for the industry.

There also exists considerable scope for consumers and businesses in the United Kingdom to increase their borrowing levels. Household and corporate debt ratios currently sit at the lowest points observed over the past 25 to 30 years, while UK banks' average loan-to-deposit ratios stand at 90 percent, providing the sector with ample capacity to expand lending activities. UK banks are currently trading at just 7.5 times their two-year forward price-to-earnings ratio, a valuation level not witnessed since late 2021 and representing a 20 percent discount relative to the broader sector. Although political and economic uncertainties persist in the market, this discount appears unjustified.

There is also substantial cash available for distribution to investors. Berenberg anticipates that the average total yield of UK banks will increase to between 10 percent and 11 percent by 2028 compared with the current range of 7 percent to 8 percent, with the total comprising a combination of dividends and share buybacks. Berenberg favors Barclays due to its exposure to the US investment banking and trading sectors, along with NatWest. Barclays has achieved meaningful progress within its investment bank through improved profitability and controlled costs. Investment banking and trading revenues have expanded steadily since 2022, with the teams maintaining pace with peers at the major Wall Street institutions. Despite this advancement, the bank trades at just 1.2 times tangible net asset value, placing it at the lower end of its European peer group. Berenberg estimates that, based on its return on tangible equity of 14.3 percent, it should be trading closer to 1.6 times net asset value, indicating potential upside of 40 percent. Earlier this year the bank committed to returning 15 billion pounds to shareholders as part of its growth strategy.

NatWest, meanwhile, trades at a 25 percent discount to the European banking sector average. The lender is generating a 20 percent return on tangible equity and reporting strong organic capital generation. Organic capital generation is projected to exceed 200 basis points per annum over the coming years, which should support growth initiatives, shareholder distributions and potential bolt-on acquisitions. The shares are currently trading at a 2028 price-to-earnings ratio of just 6.5 and offer a potential forward dividend yield of 7.5 percent. The recent acquisition of Evelyn Partners will additionally assist the company in expanding its presence within the profitable wealth-management sector.

The most promising global banking players

One of the more compelling global opportunities is presented by Santander. This lender maintains operations across the United States, Europe, the United Kingdom and Southern and Central America, positioning it as one of the few truly global banking entities. The bank serves 180 million customers worldwide and aims to surpass 210 million by 2028. Simultaneously, it has outlined plans to generate 20 billion euros in profit by 2028, representing growth of approximately 40 percent, supported by recent acquisitions including Webster Financial in the United States for 12 billion dollars earlier this year and TSB Bank in the United Kingdom. It expects all divisions, including loans, wealth management and cross-border finance, to contribute to this expansion. Growth constitutes only one aspect of the narrative. The other dimension involves shareholder returns. The lender is approaching the conclusion of a program to distribute 10 billion euros through share buybacks covering 2025 and 2026, and analysts believe it will replenish this pipeline once the current authorization expires.

UBS represents another global player that analysts consider undervalued. Having now fully completed the merger with Credit Suisse and eliminated redundant costs, the group can focus on executing its strategy, expanding the wealth-management business and its private bank. According to analysts' consensus estimates compiled by UBS, the bank is expected to report 10.7 billion dollars of net income for 2026, rising to 14.4 billion dollars in 2028. The wealth-management arm is projected to increase assets under management by approximately 1 trillion dollars and see profit before tax nearly double from 5 billion dollars to 10 billion dollars by 2028. Based on these projections, the shares trade at a 2028 forward price-to-earnings ratio of around 9.5. Analysts have also factored in a reduction in outstanding share capital of approximately 10 percent and anticipate the dividend per share will rise by 40 percent to 1.58 dollars over the same timeframe.

Among the large US banks, the most attractively valued is Citigroup. Trading at 1.2 times book value, the bank has long struggled to meet the elevated expectations of the market. Its peers Goldman and Morgan Stanley trade at 2.8 and 3.3 times book value respectively. Nevertheless, the bank is benefiting from many of the same tailwinds supporting its competitors. Markets and equities trading revenues increased by 17 percent and 45 percent respectively during the second quarter, while the group's cost-to-income ratio came in at 57.4 percent compared to a full-year target of 60 percent. In the first half, Citi achieved a 13 percent return on tangible capital employed and has indicated expectations of 10 percent to 11 percent for the full year, suggesting it is roughly a third less profitable than major peers such as Goldman Sachs based on this metric. While that justifies a lower valuation, a discount exceeding 50 percent appears excessive. With a solid Tier-1 capital ratio of 12 percent, the bank was able to announce a 30 billion dollar multi-year share repurchase program following the successful completion of the Federal Reserve's supervisory test earlier this year. Citi's cash returns exemplify the broader sector trend. During the first quarter of this year, the eight largest US banks distributed 46 billion dollars to shareholders through dividends and buybacks, representing a one-third increase from the prior year. European banks are expected to return 123 billion euros this year. It is time for investors to pay closer attention to these developments.