Major US Banks: Raising Our Fair Value Estimates after a Fresh Look

With changes to our analyst coverage for major US banks, updated forecasts for revenue and costs are leading to higher valuations. The new analyst coverage brings revised assumptions on growth, margins, and capital deployment.

Highlights include:

• While JPMorgan Chase JPM is the highest quality bank in our coverage, we think Bank of America BAC is the best idea of the group at current valuations.
• No moat changes for the group, as JPMorgan Chase, Bank of America, and Wells Fargo WFC remain wide-moat, while Citigroup C remains no-moat.
• Despite no formal change in the moat rating, our thesis on Citigroup has become materially more constructive in what we believe are the middle-innings of the turnaround.

JP Morgan

The bottom line: We’re raising our fair estimate for JP Morgan from $289 to $304, while maintaining our ratings of a Wide Economic Moat, Medium Uncertainty, and Exemplary Capital Allocation.

• Our thesis that JPMorgan Chase is the most competitively advantaged bank in our coverage remains unchanged, evidenced by top market share across global investment banking fees, institutional trading revenue, domestic deposit market share, merchant acquiring, and credit card issuance.
• Our fair value estimate increase was chiefly driven by more constructive forecasts pertaining to noninterest revenue generation over the cycle, particularly in asset and wealth management, on the back of annualized net new asset flows and market appreciation of 5.7% and 4.6%, respectively.

Big picture: While nearly every business line at the firm remains a dominant force in isolation, we believe that combining them under a single roof makes the whole stronger than the sum of its parts.

• Despite a higher mix of lower margin business lines than traditional banking, like wealth management, the firm generated the strongest efficiency ratio in our coverage at 52.4% last year, as it fractionalizes expenses across nearly 87 million consumers and over 100,000 commercial clients globally.
• While investors occasionally get squeamish regarding the size of its expense budget, which management is currently guiding to roughly $105 billion for 2026, we believe the capability and willingness of the firm to continually upgrade its offerings enable the continued distancing from peers.

Maoyuan Chen, Morningstar equity analyst

Bank of America

The bottom line: We’re raising our fair value estimate for Bank of America to $65 from $58 while maintaining our ratings of a wide economic moat, Medium uncertainty, and Standard capital allocation.

• Our raised fair value estimate is driven by a more constructive view on noninterest revenue generation, increasing our annualized growth forecasts to 5.1% from 3.1%, and a 50-basis-point reduction in the country-risk premium for the cost of equity, as 90% of net income is generated domestically.
• The fair value estimate increase was tempered by slower projected net interest income growth, as we believe the big banks are willing to pay higher deposit yields than in the past, recognizing higher customer monetization potential than peers and rising competition from fintech platforms.

Coming up: While our long-term net interest margin forecasts are a bit more muted, we note that continued maturation of the held-to-maturity security portfolio and the denominator effect associated with balance sheet growth should materially improve net interest income in the near to medium term.

• Of the nearly $523 billion long-dated Treasury- and mortgage-backed securities that are yielding a blended 1.4% and 1.9%, respectively, approximately $276 billion should mature by 2031, enabling a net interest income tailwind as this freed-up capital is redeployed into higher-yielding endeavors.
• We believe this low-yielding portfolio has functioned as an anchor on the return profile, effectively disguising the underlying fundamental strength of the franchise to those who overly index on simplistic current metrics, presenting an attractive entry point for patient, long-term investors.

Kevin Brown, Morningstar senior equity analyst

Citigroup

The bottom line: We’re raising our fair estimate for Citigroup to $122 from $104, while maintaining our no-moat, Medium Uncertainty, and Standard Capital Allocation ratings.

• Despite not receiving an upgraded economic moat rating, our thesis surrounding Citi has become significantly more positive, as we believe that shedding the international consumer business and increasing focus on the services segment should materially improve its return profile.
• Our fair value estimate increase was predominantly due to a more constructive view of noninterest revenue growth and operating efficiency, with the services segment, Citigroup’s crown jewel, forecast to grow, as a percentage of mix, to roughly 52% over the next decade, up from 38%.

Bulls say: While Citigroup lacks the domestic footprint among retail clientele and middle-market firms that its money-center peers profitably enjoy, Citigroup’s unmatched global reach enables it to service multinational corporations at a level that few, if any, could duplicate.

• Citigroup’s network breadth is second to none, owning licenses for local currency clearing systems in 94 countries and direct membership in 270-plus cash clearing systems worldwide, representing over 50% and 64% more than the second-closest competitors, respectively.
• Citi serves 90% of the Global Fortune 500 and has gained more than 230 basis points in large corporate client spending since 2021.

Coming up: Citigroup’s ongoing simplification initiative has compressed 13 layers of management to eight, in addition to divesting its international consumer banking franchise across all 14 countries in which it operated.

• After fully exiting 10 countries, with three pending closures in 2026, the final puzzle piece is the planned IPO of Banamex, the Mexican consumer bank, which could yield a capital infusion of more than $5 billion for Citigroup, which retains a 51% stake.

Maoyuan Chen, Morningstar equity analyst

Wells Fargo

The bottom line: We’re raising our fair value estimate for Wells Fargo to $93 from $85, while maintaining our wide economic moat rating, Medium Uncertainty Rating, and Standard Capital Allocation Rating.

• Our raised fair value is driven by a more constructive view on noninterest revenue generation, increasing our annualized growth forecasts to 3.8% from 2.1%, and operating efficiency, improving our midcycle forecast for the efficiency ratio by roughly 100 basis points to 58.3%.
• The fair value increase was tempered by slower projected net interest income growth, as we believe the big banks are willing to pay higher deposit yields than in the past, recognizing higher customer monetization potential than peers and rising competition from fintech platforms.

Big picture: Wells Fargo operates from an attractive place in the banking spectrum, enjoying the benefits of scale and economies of scope at levels that materially enhance its profitability more than regional banks while retaining the benefits of a reduced systemic footprint than its money-center peers.

• While not the most advantaged money-center bank holistically, Wells Fargo has a nuanced cost advantage over all the other money-center banks by carrying a significantly lower global systemically important bank surcharge, allowing it to maintain a common equity Tier 1 ratio that is 1.5%, 2.0%, and 3.0% basis points below Bank of America, Citi, and JP Morgan, respectively, which translates, by our estimates, to the generation of annualized returns on tangible common equity that are 1.7%, 2.4%, and 3.7% higher, all else equal.
• Wells Fargo’s deposits in the US are roughly 81.4% larger than fourth-place Citi and more than double that of fifth-place US Bancorp, enabling it the opportunity to enhance profitability by fractionalizing costs across a wider base of domestically based commercial and retail clients.

Michael Miller, Morningstar equity analyst