Why many large-bank stocks look like bargains for long-term investors

By Philip van Doorn

A combination of high and improving returns on equity and low or declining price/earnings ratios make the case for several major industry players

These are among the large U.S. banks that have shown a combination of high returns on tangible common equity and have low forward price/earnings ratios.

Bank earnings season isn't over, but it is not too early to point out that some of the big banks stand out with a combination of high or improving returns on equity and low or declining price/earnings valuations.

Let's begin by looking at how returns on tangible common equity and forward P/E ratios for the largest 15 U.S. banks by total assets have changed over the past year.

A bank's ROTCE is its return on equity, excluding preferred stock and intangibles such as goodwill, loan-servicing rights and deferred tax assets.

All of these banks have reported their fourth-quarter results except for American Express (AXP), for which we are showing ROTCE for the first three quarters of 2025 and total assets as of Sept. 30. American Express will announce its fourth-quarter earnings on Friday.

All ROTCE figures were calculated by FactSet, except for some that cannot be calculated by the data provider until full 2025 financial statements are presented within the banks' annual reports. Therefore, for Goldman Sachs (GS), Morgan Stanley (MS), Capital One (COF) and Charles Schwab (SCHW), we have used the banks' own reported ROTCE figures.

Bank of New York Mellon's return on equity has always been outstanding, and certainly underappreciated.Macrae Sykes, portfolio manager at Gabelli

To the right of the ROTCE columns are a comparison of current forward P/E ratios to those from a year ago. These are stock prices divided by consensus earnings-per-share estimates among analysts working for brokerage and research firms polled by FactSet.

You may need to scroll the table or flip your screen to landscape to see all of the data:

   Bank                                  2025 ROTCE  2024 ROTCE  Forward P/E  Forward P/E one year ago  Total assets ($bil) 
   JPMorgan Chase & Co.                       20.0%       22.1%         13.9                      14.2               $4,425 
   Bank of America Corp.                      14.1%       12.9%         11.8                      12.4               $3,410 
   Citigroup Inc.                              7.7%        6.9%         10.9                      10.8               $2,657 
   Wells Fargo & Co.                          14.8%       13.5%         12.3                      13.0               $2,149 
   Goldman Sachs Group Inc.                   16.0%       13.5%         15.7                      13.7               $1,810 
   Morgan Stanley                             21.6%       18.5%         15.9                      15.9               $1,420 
   U.S. Bancorp                               19.4%       16.8%         11.0                      11.1                 $692 
   Capital One Financial Corp.                 3.2%       10.1%         10.4                      12.9                 $662 
   PNC Financial Services Group Inc.          15.1%       15.3%         12.0                      12.8                 $574 
   Truist Financial Corp.                     12.3%       -1.1%         10.9                      11.5                 $548 
   Bank of New York Mellon Corp.              30.5%       23.6%         14.0                      12.2                 $472 
   Charles Schwab Corp.                       38.0%       35.3%         17.3                      19.3                 $491 
   State Street Corp.                         18.8%       18.7%         10.7                      10.0                 $366 
   American Express Co.                       35.4%       39.9%         20.5                      21.2                 $298 
   Fifth Third Bancorp                        17.3%       17.6%         14.1                      11.9                 $214 
                                                                                                            Source: FactSet 

Here are some notes about the data, highlighting combinations of attractive or improving ROTCE along with low or declining P/E:

• Schwab stands out with the highest 2025 ROTCE, at 38%, and with a forward P/E of 17.3, which is second-highest on the list but well below its level of 19.3 a year ago.
• American Express's ROTCE for the first three quarters of 2025 was down from the 2024 ROTCE but was still the second-highest on the list. This is the most expensive bank stock on the list by forward P/E, but that valuation is down from its year-earlier level, even though the share price has increased by 11%, excluding dividends.
• Bank of New York Mellon's BK 2025 ROTCE was vastly improved from 2024, and when the bank announced its fourth-quarter results, it raised its medium-term ROTCE target to 28% from 23%. When asked during the bank's conference call with analysts on Jan. 13 whether that might be a conservative target, since the 2025 ROTCE was higher than the new target, Bank of New York Mellon Chief Financial Officer Dermot McDonogh said, "Maybe think of that as a floor to our ambition," according to a transcript provided by FactSet.
• Like Bank of New York Mellon, State Street STT is focused on custody services and asset management. State Street's 2025 ROTCE was lower than that of its rival trust bank; however, it was up slightly from a year earlier. Meanwhile, State Street's forward P/E is second-lowest among these 15 banks. Only Capital One's stock is cheaper on this basis, and Capital One's ROTCE over the past two years has been much lower than that of State Street. During 2025, Capital One incurred one-time expenses related to its May acquisition of Discover, including a boost to loan-loss reserves and booking losses on the sale of mortgage loans.
• Morgan Stanley's ROTCE improved to 21.6% in 2025 from 18.5% in 2024. Its current forward P/E of 15.9 is unchanged from a year ago, even though the share price (excluding dividends) has increased 30%.
• U.S. Bancorp's USB 2025 ROTCE improved to 19.4% from 16.8% in 2024. Its current forward P/E is 11, down slightly from a year ago and fourth-lowest on the list.

When asked about the trust banks (Bank of New York Mellon and State Street), Macrae Sykes, a portfolio manager at Gabelli, told MarketWatch that he had "always appreciated their businesses," which feature "pretty stable fees and straightforward operations."

Sykes holds both of those stocks as portfolio manager of the Gabelli Financial Services Opportunities exchange-traded fund GABF, which has a five-star rating (the highest) within Morningstar's U.S. Fund, Financial category. Among the 15 banks listed above, Sykes also holds American Express, JPMorgan Chase (JPM), Morgan Stanley and Schwab within the GABF portfolio.

Under the leadership of Robin Vince, who became Bank of New York Mellon's chief executive in August 2022, "execution has been stronger," Sykes said. He added that market volatility has been a benefit for the various custody, trading and back-office work the institution does for corporate clients in the brokerage and asset-management industries.

"Bank of New York Mellon's return on equity has always been outstanding, and certainly underappreciated," he said. Sykes also pointed to this statement from Vince during the Jan. 13 call, which was confirmed per the FactSet transcript: "Over the last two years, the number of clients buying three or more of our services increased by more than 60%."

When discussing State Street, Sykes said the bank had reported eight straight quarters of improving operating leverage (fixed costs to variable costs) and that it had been making good progress reducing expenses, while service fees had "grown by double digits." He specifically pointed to the SPDR suite of exchange-traded funds managed by State Street as "a nice area of growth."

Amid the "wave of innovation for tokenization, digital assets, crypto and stablecoins," Sykes said, both Bank of New York Mellon and State Street had been "developing platforms quickly to service the new space."

When discussing the trust banks' valuations, he said that "historically, they have traded between 10 and 13 times earnings," and that Bank of New York Mellon "has certainly seen the multiple expand" to the current forward P/E of 14.

"We have had a pretty strong run-up in the markets and good operating leverage, so it can be more challenging going forward," he said.

But even if the valuations aren't particularly attractive now, banks are operating under an easing regulatory environment, and the trust banks have continued with what Sykes called "very healthy capital return" in the form of dividend increases and stock buybacks.

So with high ROTCE and buybacks to lower share counts and boost earnings per share, along with dividend increases, long-term investors may still be looking at excellent opportunities with the trust banks and others among the players with attractive ROTCE.

Let's end with a chart. This shows the weighted forward P/E of the Invesco KBW Bank ETF KBWB, which tracks the KBW Nasdaq Bank Index BKX of 24 of the largest U.S. banks, relative to that of the SPDR S&P 500 ETF Trust SPY, which tracks the S&P 500 SPX, since the end of 2011:

Large U.S. banks as a group are trading relatively low against the S&P 500 on a weighted forward P/E basis.

Over the past 15 years, the big U.S. banks as a group have traded on average at 67% the S&P 500's weighted forward P/E. Now they are slightly more discounted, at a 56% relative valuation.

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