Large Bank Stocks Present Value Opportunity: Returns on Equity and Low P/E Multiples Create Attractive Entry Points

The January 26, 2026 MarketWatch analysis presents a compelling fundamental case for large-bank stocks as long-term value investments. The central thesis rests on three pillars: first, high and improving returns on tangible common equity across the sector; second, low or declining price-to-earnings multiples relative to historical norms and the broader market; and third, the significant discount at which the banking sector trades relative to the S&P 500 index. The KBW Bank ETF’s valuation at approximately 56% of the index’s weighted forward P/E suggests substantial undervaluation by historical measures [1].

The timing of this analysis is particularly noteworthy, coinciding with a notable pullback in bank stock valuations over the preceding 30-day period. Major institutions have experienced meaningful price declines: JPMorgan Chase fell 6.18% to close at $299.91, Bank of America declined 5.25% to $51.91, and Wells Fargo dropped 5.87% to $87.66 [0][1]. This recent weakness has created what the article characterizes as attractive entry points for long-term investors seeking exposure to fundamentally sound financial institutions trading at discounts to intrinsic value.

The analytical data reveals a sector characterized by strong profitability metrics despite recent valuation compression. Among the 15 largest U.S. banks, most demonstrated 2025 ROTCE of 15% or higher, with several institutions delivering exceptional returns exceeding 25%. Charles Schwab led the group with a 38.0% ROTCE, representing a 2.7 percentage point improvement year-over-year, while trading at a forward P/E of 17.3 with a 2.0 point multiple contraction [1]. American Express posted the second-highest ROTCE at 35.4%, though this represented a 4.5 percentage point decline from the prior year, with its forward P/E of 20.5 showing a modest 0.7 point compression [1].

The trust banking segment demonstrated particularly strong momentum, with Bank of New York Mellon recording a 30.5% ROTCE—a remarkable 6.9 percentage point improvement that significantly outpaced peers. State Street similarly benefited from regulatory relief efforts, generating an 18.8% ROTCE with minimal year-over-year change. Both institutions are actively developing digital asset and tokenization platforms to service emerging market opportunities, representing potential future growth catalysts [1]. Morgan Stanley achieved a 21.6% ROTCE with a 3.1 percentage point improvement, trading at a forward P/E of 15.9 with a stable multiple [1].

JPMorgan Chase, the nation’s largest bank by assets, maintained solid profitability with a 20.0% ROTCE despite a 2.1 percentage point decline, while its forward P/E of 13.9 reflected a 0.3 point compression year-over-year. The bank maintains robust analyst coverage with a consensus BUY rating, price target of $331.00 representing 10.3% upside from current levels, and a rating distribution of 53.3% Buy, 41.7% Hold, and 3.3% Sell [0]. Wells Fargo’s 14.8% ROTCE showed a 1.3 percentage point improvement, with its forward P/E of 12.3 compressing by 0.7 points, while Bank of America’s 14.1% ROTCE represented a 1.2 percentage point gain with its forward P/E of 11.8 compressing by 0.6 points [1].

The Federal Reserve’s ongoing interest rate normalization cycle continues to shape the banking sector’s operating environment. Market analysis indicates expectations for two additional quarter-point rate cuts by December 2026, with Treasury yields declining substantially in early 2025—the 10-year yield falling 40 basis points and the 2-year yield dropping 77 basis points [2][3]. Lower rates generally benefit banks through reduced deposit costs and improved loan demand, though net interest margin compression remains an ongoing headwind that has largely been priced into current valuations.

The rate environment creates a nuanced backdrop for bank profitability. While the benefit of higher rates on net interest income has normalized, the expectation of continued easing provides support for loan growth and deposit franchise value. Banks with strong deposit bases and pricing power may benefit disproportionately as the cycle progresses, while those heavily reliant on non-interest income streams could see continued fee-based growth opportunities.

The easing of regulatory burdens for trust banks represents a significant and underappreciated catalyst for the sector. Bank of New York Mellon and State Street have particularly benefited from reduced compliance requirements that previously constrained their profitability. The regulatory relief removes a major structural headwind that had compressed returns for these institutions throughout the post-pandemic period. Bank of New York Mellon’s management noted that clients purchasing three or more services increased by over 60% in the past two years, signaling expanding fee-based revenue opportunities that should accelerate as regulatory constraints continue to ease [1].

Both Bank of New York Mellon and State Street are “developing platforms quickly to service the new space” related to digital assets and tokenization, according to Macrae Sykes of Gabelli [1]. This positioning represents a potentially significant long-term growth opportunity as institutional demand for digital asset custody and servicing infrastructure matures. While digital asset revenue currently represents a minimal portion of overall earnings, the strategic positioning of major custody banks in this emerging market could provide meaningful upside as the regulatory framework clarifies and institutional adoption accelerates.

Ongoing dividend increases and share buyback programs across the banking sector continue to reduce share counts and boost earnings per share, creating a virtuous cycle for shareholders. Major banks have demonstrated consistent commitment to returning capital to shareholders, with 2026 buyback authorizations remaining robust despite recent stock price weakness. This capital return discipline, combined with stable or growing dividends, provides a meaningful total return component that enhances the long-term investment thesis for patient capital.

The divergence between strong profitability metrics and compressed valuations creates a notable disconnect that favors long-term value investors. Banks demonstrating ROTCE of 15% or higher are trading at forward P/E multiples that discount this profitability, with the sector-wide discount to the S&P 500 at historically wide levels. This valuation gap appears to reflect ongoing concerns about net interest margin compression and potential credit quality deterioration rather than fundamental operating weakness at most major institutions.

Bank of America’s financial analysis indicates an “aggressive” classification with high debt risk, suggesting elevated leverage that could become problematic in an economic downturn [0]. While consumer and commercial credit quality has remained resilient, the extended credit cycle increases the importance of monitoring loan portfolio performance. Banks with significant consumer lending exposure may face pressure if economic conditions deteriorate, though most major institutions have maintained conservative reserve positions that provide buffer against credit losses.

JPMorgan’s revenue concentration in Commercial and Investment Banking (42.8%) and Consumer & Community Banking (41.9%) [0] means sector-specific weakness could materially impact earnings. This concentration creates vulnerability to industry-specific disruptions in either the investment banking cycle or consumer spending trends. While diversification within these segments provides some protection, the scale of individual business lines means that meaningful weakness in either segment would significantly affect overall results.

Despite regulatory relief for trust banks, the broader regulatory environment remains subject to political and policy changes that could reintroduce compliance burdens. The incoming administration’s approach to financial regulation, capital requirements, and systemic risk oversight will influence the operating environment for major banks. While current trends suggest continued easing, regulatory outcomes remain uncertain and could materially affect profitability projections.

The combination of recent price weakness, strong profitability metrics, and historically wide valuation discounts creates what appears to be an attractive entry point for long-term investors. The 30-day pullback has enhanced valuation attractiveness without corresponding deterioration in fundamental operating performance. Investors with appropriate time horizons and risk tolerance may benefit from patient capital deployment into high-quality bank stocks at current levels, particularly those institutions demonstrating improving ROTCE trends and disciplined capital return policies.

The MarketWatch analysis identifies large-bank stocks as fundamentally attractive for long-term investors based on the combination of high ROTCE (many banks exceeding 15%), low or declining P/E multiples (often below historical averages and significantly discounted to the S&P 500), and group-wide trading at substantial valuation discounts. The KBW Bank ETF’s valuation at approximately 56% of the index’s weighted forward P/E represents historically wide discount levels [1].

Recent 30-day performance shows meaningful price weakness across major banks—JPMorgan Chase (-6.18%), Bank of America (-5.25%), and Wells Fargo (-5.87%)—that has enhanced valuation attractiveness without corresponding fundamental deterioration [0]. JPMorgan’s probability-weighted DCF valuation of $626.39 represents 108.8% upside from current levels, while analyst consensus maintains a BUY rating with a $331.00 price target [0].

Key catalysts identified include regulatory relief for trust banks, expanding fee-based revenue opportunities, digital asset platform development, and disciplined capital return through dividends and buybacks. The interest rate environment, with expectations for continued Fed rate cuts through 2026, provides a generally supportive backdrop for banking sector profitability [2][3].

Risk factors requiring monitoring include potential credit quality deterioration in consumer and commercial portfolios, regulatory uncertainty, concentration risks in major business lines, and ongoing net interest margin normalization. The investment thesis is best suited for long-term investors with tolerance for near-term volatility who can benefit from the combination of dividend income, buyback-driven equity reduction, and potential multiple expansion over extended holding periods.