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KBW OVERWEIGHT BIG BANKS AHEAD OF Q4, SEES BROADENING

Even after a 2,000-3,000 basis points of outperformance by bigger (aka Universal) U.S. banks in 2025, Keefe, Bruyette & Woods analyst Christopher McGratty says the firm is still overweight on the group.

McGratty notes, in his fourth-quarter bank preview piece, that a broadening out of capital return and strengthening net interest income (NII) growth supports the addition of targeted exposure to traditional banks, as in super regionals and small and mid-sized lenders.

With earnings season kick-off just days away, the firm, which specializes in financial services companies, will be focused on 2026 guidance. KBW sees "11% EPS growth for the year, supported by good NII performance, positive operating leverage, stable credit quality, and robust capital markets activity."

This compares to the KBW estimate for Q4 EPS growth of 14% with support from a 7th consecutive quarter of NII growth, "decent" loan growth and stable credit quality. They also expect market-sensitive fees such as investment banking, trading and wealth management to "likely continue their momentum."

With all this in mind, McGratty says Citigroup C.N is KBW's top Universal pick for 2026. He sees State Street STT.N reporting above-consensus EPS, and says it has an attractive valuation and strong profitability.

Among the Super Regionals he points to US Bancorp USB.N with "positive operating leverage, emerging capital flexibility, reasonable valuation."

And in the small and mid sector he highlights Webster Financial WBS.N, SouthState Bank SSB.N, Hancock Whitney HWC.O, Glacier Bancorp GBCI.N, Seacoast Banking SBCF.O, Independent Bank INDB.O, First Busey BUSE.O, and Mid Penn Bancorp MPB.O.

Earlier this week Reuters reported that US bank profits are expected to surge in the fourth quarter fueled by a surge in investment banking revenue as dealmaking accelerates.

(Sinéad Carew)

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