US stock bank stocks are bullish. Goldman Sachs Group, Inc. analyzes three key issues and looks promising for Bank of America (BAC.US), Citigroup (C.US), and Wells Fargo & Company (WFC.US).

The new round of earnings season for US stocks will kick off this month, with bank stocks leading the way. In a research report released on April 1st, Goldman Sachs Group, Inc. stated that there are doubts in the market regarding the growth of net interest income (NII) for banks, the recovery of trading income and investment banking business, and capital returns. However, the bank expressed optimism for Bank of America Corp (BAC.US), Citigroup (C.US), and Wells Fargo & Company (WFC.US) due to their strong fundamentals and potential for growth in loans, fee income, and capital returns. Goldman Sachs Group, Inc. highlighted three key themes that investors will focus on during the upcoming first quarter 2025 earnings season for US bank stocks: 1. Outlook for Net Interest Income (NII): How much has the NII growth trajectory changed since the beginning of the year? Goldman Sachs Group, Inc. adjusted its NII expectations for 2025E/2026E/2027E downward due to weak loan growth and flattening yield curve, with reductions of 80/130/160 basis points respectively compared to forecasts after the fourth quarter of 2024 earnings release. Despite the uncertainties, the bank predicted a 5% year-over-year growth in NII for 2025, with a 1% year-over-year growth in the first quarter of 2025 (but a sequential decline of 1%). The bank's NII growth rate forecast for 2025 (excluding Morgan Stanley) is about 70 basis points lower than market expectations. Although the bank lowered its NII expectations, it does not currently believe that banks will adjust their full-year NII guidance. 2. Uncertainties in the Recovery of Trading Income and Investment Banking Business While the short-term trading income environment remains healthy, there are doubts whether trading income has peaked and uncertainties in the recovery path of investment banking business. Additionally, the volume of investment banking business has decreased by about 10% year-over-year since the beginning of the year, raising questions about the pace of recovery in mergers and equity capital markets. 3. Uncertainty in the Timing and Scale of Capital Returns Goldman Sachs Group, Inc. anticipated that some banks will seek to increase stock buybacks and gradually raise dividend payout rates considering the relaxation of regulatory capital requirements and the excess capital held by large banks. The bank expected a year-over-year growth of about 35% in capital returns for 2025, with an increase of about 70 basis points in capital return rate. The bank believed that banks might face lower future capital requirements after the election. However, banks may still maintain cautious capital deployment in the short term due to uncertainties such as regulatory reforms and capital requirements for Globally Systemically Important Banks (G-SIBs). Goldman Sachs Group, Inc. maintained a constructive view on Bank of America Corp, Citigroup, and Wells Fargo & Company, with a "buy" rating on all three bank stocks. Bank of America Corp is included in Goldman Sachs Group, Inc.'s Conviction list. 1. Bank of America Corp Goldman Sachs Group, Inc. expressed optimism about Bank of America Corp's NII trajectory until 2026, with expected year-over-year growth of 6% and 5% in 2025 and 2026 respectively, higher than the average level of large banks by about 1-2 percentage points. The drivers include minimal short-term interest rate pressure, strong year-over-year growth in loans and deposits, value-added effects of repricing fixed rate assets, better-than-expected deposit repricing, and sensitivity of NII at the liability end of global market business to interest rate changes. Moreover, Goldman Sachs Group, Inc. expected Bank of America Corp to maintain discipline in cost control and generate operational leverage over the years. The bank predicted an annual expenditure growth of 2-3% for Bank of America Corp, with some growth coming from the increase in market share in capital market business. The bank also believed that there is further room for Bank of America Corp's capital returns to increase, as it could be a potential beneficiary of capital monitoring.One of the main beneficiaries of the reform.2. Citigroup Goldman Sachs Group, Inc. believes that Citigroup's strong performance in the fourth quarter of 2024 demonstrates its commitment and execution capabilities, enhancing market confidence in the achievability of its medium-term targets. Citigroup is driving future growth over the next three years through three main levers, which has led the bank to forecast earnings per share for 2025/2026 to be 1%/4% higher than Visible Alpha's market consensus expectations. The bank also stated that Citigroup's estimated return on tangible common equity (ROTCE) for 2026 is expected to be around 10.5% (at the midpoint of the latest guidance of 10%-11%, approximately 40 basis points higher than consensus expectations). These factors are expected to drive up Citigroup's stock price, which currently has a price-to-tangible-book-value ratio (P/TBV) at the lowest level among large banks. Goldman Sachs Group, Inc. points out that the three main levers are: 1) a strong 4% compound annual growth rate (CAGR) in revenue, primarily driven by growth in service business fees and increased market share in capital markets businesses; 2) efficiency improvements across a range of businesses, achieved through organizational simplification to save costs and reduce stranded costs; 3) releasing capital through strategic asset divestitures and returning value to shareholders. Goldman Sachs Group, Inc. believes that Citigroup is capable of simultaneously increasing revenues while reducing costs, and has significant capacity for share buybacks or balance sheet expansion. Given Citigroup's current undervaluation, the bank believes it could be one of the biggest beneficiaries of potential capital regulatory reforms. 3. Wells Fargo & Company Goldman Sachs Group, Inc. reiterates a constructive outlook on Wells Fargo & Company's 2025 NII trajectory, citing reasons such as: 1) better-than-expected deposit repricing, with deposit growth helping to replace high-cost funding; 2) a smaller rate cut in 2025, which should benefit the asset-sensitive Wells Fargo & Company; 3) reinvestment of securities in high-yield assets; 4) NII growth in market businesses. Goldman Sachs Group, Inc. states that if loan growth accelerates in the second half of 2025 and in 2026, Wells Fargo & Company's NII is expected to grow by 5% year-on-year in 2026. Additionally, the fee income trajectory for Wells Fargo & Company is also promising, as the bank's investments in investment banking and trading businesses have yielded results. Goldman Sachs Group, Inc. forecasts core fee income for Wells Fargo & Company in 2025/2026 to be 3%/4% higher than market consensus expectations. Furthermore, Goldman Sachs Group, Inc. anticipates that once asset limits are lifted, Wells Fargo & Company is poised for profit growth through: 1) reinvesting to regain lost deposit market share, supporting traditional banking business growth (i.e. supporting loans and securities portfolios); 2) expanding trading businesses, particularly in low-risk weighted asset (RWA) businesses, such as repurchase agreements, to drive overall growth in Wells Fargo & Company's capital market activities; 3) accelerating savings in operational costs, as Wells Fargo & Company reduces investments in risk control and plans to optimize redundant technology systems.