Large bank industry view remains positive, with growth and funding costs the key differentiators after 2Q26

Overview

This report is Morgan Stanley’s update of key operating metrics for North American large banks after 2Q26 results. Using extensive peer tables, the report compares major banks across assets and loan growth, deposit mix, loan-to-deposit ratios, net interest margin, net interest income, return on assets, deposit and liability costs, fees, revenues, expenses, provisions, credit quality, earnings per share, capital returns, capital adequacy, book value, dividends, and share repurchases on both a cross-sectional and time-series basis.

Core views

The report maintains a positive industry view on North American large banks. Expected asset growth in 2026 improves versus 2025, but dispersion among banks is significant, with GS, WFC, JPM, and C expected to post asset growth above the sample median. Future earnings performance will depend not only on asset and loan expansion, but also on deposit size and mix, the pace of decline in interest-bearing deposit costs, changes in net interest margin, expense control, and credit losses. Capital adequacy, dividends, and repurchases will determine the extent to which earnings translate into shareholder returns.

Analysis framework

The report places quarterly actuals alongside forecasts for 2026 to 2028 and conducts peer comparisons using year-over-year and quarter-over-quarter changes. The analysis starts with balance sheet size, then sequentially breaks down deposit mix, funding costs, spreads, and net interest income, before incorporating fees, expenses, provisions, and credit quality, and finally evaluates earnings per share, return on assets, return on equity, return on tangible common equity, and capital allocation.

Methodology notes

• Peer comparisonCross-sectional comparison of key metrics for large banks

  Compare bank operating and valuation-related metrics over a unified quarterly and annual forecast period.

  Covers banks including BAC, C, GS, JPM, WFC, FITB, HBAN, KEY, PNC, TFC, USB, BNY, NTRS, and STT, and uses the median to characterize the industry benchmark.

• Earnings breakdownBank revenue, cost, and credit cost analysis

  Break bank profitability into net interest income, fee income, operating expenses, and credit losses.

  This framework is used to assess whether asset expansion can translate into revenue growth, and whether funding costs, operating expenses, and provisions offset the benefits of growth.

• Net interest margin analysisTraditional net interest margin methodology

  Net interest income divided by average earning assets and annualized.

  The report explicitly uses the traditional methodology to calculate net interest margin, enabling consistent comparisons of asset yields, liability costs, and spread performance across banks.

• Capital returnsProfitability and shareholder distribution framework

  Evaluate shareholder value creation by combining capital return ratios, capital adequacy, dividends, and repurchases.

  The report considers return on assets, return on equity, return on tangible common equity, common equity tier 1 capital ratio, and total payout ratio.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• North American large bank stocks

  Industry asset directly covered by the report

  Strengths

  Expected median asset growth in 2026 improves, the industry view is attractive, and lower deposit costs and improved spreads may support earnings.

  Weaknesses

  There is significant dispersion across banks in growth, deposit mix, funding costs, expense efficiency, and capital returns.

  Comparison

  The report conducts cross-sectional comparisons using quarterly actuals, annual forecasts, and industry medians for 14 banks.

  Risks

  Deposit competition, interest rate changes, weaker loan demand, rising credit losses, expense growth, and stricter regulatory capital requirements.

• GS, WFC, JPM, and C

  Banks with expected average asset growth in 2026 above the sample median

  Strengths

  Expected average asset growth in 2026 is 18.0%, 13.9%, 12.4%, and 10.1%, respectively, all above the sample median of 8.1%.

  Weaknesses

  Faster scale growth still needs to be validated in terms of quality through net interest margin, expense efficiency, credit performance, and capital returns.

  Comparison

  They rank at the higher end of the sample in the report’s disclosed forecasts for year-over-year growth in average assets in 2026.

  Risks

  Growth fails to translate into earnings, financing costs rise, asset quality deteriorates, or capital consumption exceeds expectations.

• FITB, HBAN, and KEY

  Moved into the large bank industry coverage group in this update

  Strengths

  After inclusion in the unified large bank comparison framework, they can be directly compared with larger peers in operating efficiency and capital returns.

  Weaknesses

  Their scale, growth trajectories, and deposit mix differ from the large bank sample, so comparability should be considered in cross-sectional comparisons.

  Comparison

  Previously part of the mid-cap bank coverage group, they were moved to the large bank group in this update.

  Risks

  A change in coverage grouping does not imply improvement in fundamentals or ratings; earnings and risk metrics still require independent assessment.

Key data

• Industry viewAttractiveApplies to the North American large banks industry.
• Coverage sample14 banksIncludes BAC, C, GS, JPM, WFC, FITB, HBAN, KEY, PNC, TFC, USB, BNY, NTRS, and STT.
• Median year-over-year growth in average assets4.3% in 2025; 8.1% expected in 2026; 3.3% expected in 2027; 3.7% expected in 2028Shows that expected growth accelerates meaningfully in 2026 before returning to a more moderate level thereafter.
• Leading sample banks by expected average asset growth in 2026GS 18.0%, WFC 13.9%, JPM 12.4%, C 10.1%All of the above banks are above the sample median of 8.1%.
• JPM average total assets4,979,831 expected in 2026; 5,257,373 expected in 2027; 5,550,178 expected in 2028The original table does not clearly show the numerical unit in the retained content.
• JPM average total deposits2,695,514 expected in 2026; 2,812,074 expected in 2027; 2,933,860 expected in 2028Maintains a relatively large deposit base among the major banks listed; the original table does not clearly show the numerical unit in the retained content.
• Industry coverage adjustmentFITB, HBAN, and KEY moved into the large bank group; RF moved into the mid-cap bank groupThis report also adjusted the bank industry coverage groupings.

Impact & implications

Improved expectations for industry asset growth provide a foundation for revenue and earnings expansion, but the ultimate degree of benefit will be determined by liability-side repricing, the share of non-interest-bearing deposits, and credit costs. If deposit costs continue to decline and asset yields remain resilient, net interest margins and net interest income should be supported; if loan growth slows, deposit competition intensifies, or provisions rise, operating leverage may weaken. For investors, priority should be given to comparing growth quality, room for funding cost declines, stability of credit metrics, and capital return capacity, rather than relying solely on asset size growth.

Risks

• Deposit competition intensifies or the share of interest-bearing deposits rises, causing funding costs to decline more slowly than expected.
• Changes in the interest rate path compress asset yields, spreads, and net interest margins.
• Loan demand weakens, causing asset growth and net interest income to fall below forecasts.
• Net charge-offs, non-performing loans, or provisions rise, eroding pre-provision pretax profit.
• Expense growth exceeds revenue growth, causing operating leverage to weaken.
• Higher capital requirements limit share repurchases, dividend growth, and total payout ratios.
• Differences in M&A activity, business mix, and accounting methodology across banks may reduce the comparability of some cross-sectional comparisons.
• Some tables in the retained text contain misalignment or recognition noise, so individual figures should be verified against the original report.

What to watch

• Whether actual growth in average loans and average deposits in the second half of 2026 can meet forecasts.
• Changes in the ratio of non-interest-bearing deposits to total deposits and the loan-to-deposit ratio.
• The pace of decline in interest-bearing deposit costs, total deposit costs, and interest-bearing liability costs.
• Quarterly changes in net interest margin, spreads, and net interest income.
• Whether fee income growth and the expense ratio can generate positive operating leverage.
• Net charge-off ratio, non-performing loan ratio, allowance coverage ratio, and changes in reserves.
• Earnings per share, return on assets, return on equity, and return on tangible common equity.
• Common equity tier 1 capital ratio, dividends, share repurchases, and total payout ratio.
• Relative performance of FITB, HBAN, and KEY after inclusion in the large bank group.