Four Banks to Consider Before Upcoming Deregulation

Recently, the Federal Reserve decided to maintain current interest rates, a choice influenced by ongoing challenges with last-mile inflation and concerns that tariffs might impact prices. Despite a relatively low-key news conference from Chairman Jerome Powell, there were hints of uncertainty in the air. This has led many traders to speculate that a rate cut in March is unlikely.

While market participants may prefer lower interest rates, the combination of stable rates and a potential wave of deregulation from the new administration could provide a boost to the banking sector.

Since the election in November, the banking industry has enjoyed significant gains. Given this uncertain backdrop regarding rates and tariffs, bank stocks could serve as a stable investment choice, not only providing potential capital growth but also offering dividends while investors await a clearer market direction.

Below are four bank stocks worth considering in light of the uncertainties surrounding tariffs and interest rates.

When investing in bank stocks, it’s important to focus on specific financial indicators. Relying on technical analysis tools such as moving averages or momentum indicators might be suitable, depending on your investment horizon. However, fundamental metrics such as Price-to-Book (P/B) ratio and Return on Equity (ROE) are generally better indicators of a bank's viability. Moreover, net interest margin (NIM)—which reflects the difference between the interest banks pay on deposits versus the interest they earn from loans—is a critical profitability measure. A shrinking NIM can signify tighter lending conditions resulting from rising rates, and while this can lead to fewer loans being made, flat or declining rates can stimulate banking activity, subsequently increasing NIM.

A ‘good’ NIM can vary based on the bank's size and its loan offerings, but a negative NIM in a flat or declining rate environment is a warning sign for potential investors.

For our selections, we targeted banks exhibiting a P/B ratio ranging between 1.00 and 2.00, with an ROE exceeding 9% and a NIM higher than the industry average of 3%.

Bank of America (NYSE:BAC)

As one of the oldest and largest banks in the United States, Bank of America is gaining attention as a promising investment for 2025. With a market cap of $352 billion, BAC focuses on personal and commercial banking, investment management, mortgage services, brokerage, and wealth management across all 50 states.

Although BAC faced a 25% drop in July 2024, it has returned to form, recently hitting an all-time high above the previous record of $46.31 set in January 2022. Currently, Bank of America holds a P/B ratio of 1.31 and an ROE of 9.2%, with a forward P/E ratio of 10.65 and a dividend yield of 2.35%. Notably, it received two 'Buy' ratings from analysts at Morgan Stanley and Oppenheimer in January, alongside a 'Hold' from Piper Sandler, with an average price target of $53. This indicates a potential upside of 15% from its January 31 closing price of $46.25.

Goldman Sachs Group (NYSE:GS)

Goldman Sachs has traditionally focused on investment banking, wealth management, and market making rather than consumer banking. This prestigious Wall Street institution serves a diverse range of clients, including individuals, corporations, and governments, with a market cap currently at $200 billion.

Goldman Sachs' shares have surged nearly 70% over the past year, driven largely by impressive revenue growth. The firm has posted a 7.5% year-over-year quarterly revenue increase, pushing its stock to new highs, with recent shares trading at $650. The stock has a P/B value of 1.88 and a forward P/E of 12.4, reflecting a higher valuation. However, the impressive 12% ROE offers some reassurance for investors. Goldman also provides a dividend yield of 1.96% and was reaffirmed with 'Buy' ratings from analysts at Morgan Stanley and Barclays, with price targets of $782 and $760, respectively.

HSBC Holdings plc (NYSE:HSBC)

Next up is HSBC Holdings, one of the largest and oldest banks in the UK, with a market cap of $187 billion. HSBC operates across three segments: Personal Banking, Commercial Banking, and Global Markets, and it offers a robust dividend yield of 7.95%.

Although the Bank of England's current prime rate is higher than the U.S. Federal Funds rate, there is an expectation for a reduction to 4.5% soon. While falling rates can pose challenges for banks, HSBC is well-positioned to absorb any shocks, showcasing a 6.8% revenue growth year-over-year. The bank's P/B valuation stands at 0.99, with an ROE exceeding 12% and a forward P/E of 8.36, suggesting it is undervalued.

Bank of New York Mellon (NYSE:BK)

Finally, we have the Bank of New York Mellon, the smallest entry on this list, with a market cap exceeding $17 billion. Despite its smaller size compared to the other banks mentioned, its stock is robust and consistent. Established in New York City in 1784, BK specializes in investment banking and wealth management, also offering its own securities through ETFs and mutual funds.

This stock has gained 12% year-to-date, following a remarkable increase of over 40% in 2024. In terms of valuation, BK's P/B ratio is a comfortable 1.55, aligning with our criteria, and it boasts an ROE above 11% alongside a forward P/E of 11.3. While it may not receive the spotlight like more prominent banks such as Goldman Sachs or JPMorgan Chase, Bank of New York Mellon has delivered quality investment management services for nearly 150 years, and its stock holds promise for 2025. Additionally, it offers a dividend yield that is almost 15% higher than Goldman Sachs.

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