These are the top banking stocks for your portfolio as the world's major banks see another surge in profits
The stocks of banks have returned. The consistently troubled German lender Deutsche Bank (Frankfurt: DBK) informed investors near the end of January 2026 that it had recorded record profits in 2025 and was outperforming management's long-term profitability goals.
This was significant for the business as well as the larger international banking industry. According to the most recent report from the Boston Consulting Group, financial institutions produced a total shareholder return of 30.2 percent last year, surpassing information technology and all other major sectors. However, the majority of financial institutions continue to trade at a discount to the market of about 40%.
Deutsche Bank is a prime example of a bank that embodies the problems that have plagued the industry over the previous twenty years. Prior to 2007, the bank actively pursued expansion and rose to prominence as one of the most significant financial organizations globally, but it rapidly collapsed during the financial crisis. At first, it avoided receiving a direct bailout from the German government, but in order to survive, it was largely dependent on emergency loans from the US Federal Reserve.
Over the course of the following 15 years, the company raised capital four times, totaling more than £30 billion, while the management boasted about not receiving any funding from any government. In addition, the bank paid about £10 billion to resolve protracted inquiries into its pre-crisis sales practices. Additionally, the German authorities have raided it several times because of money laundering and tax investigations. Over the previous 20 years, the lender has settled fines totaling about £20 billion.
The bank has struggled on, and this year's earnings release appeared to be a high point. In many ways, it is amazing the bank is still in existence. The company reported a profit before taxes of 9.7 billion, up 84% from the previous year, and a post-tax return on tangible equity, a crucial indicator of banking profitability, of 10.3%.
The company reported a significant increase in fees from its asset-management and private-bank divisions, while overall costs decreased. Additionally, it has begun giving investors their money back. In January, management announced plans to give shareholders a return of up to £2.9 billion, which would include a dividend of one per share and a buyback authority of one billion shares.
Tailwinds give big banking stocks a boost.
There are other international lenders that have reported increased profitability in recent years besides Deutsche Bank. Shareholders are benefiting as the banking industry as a whole reports some of the highest profit and earnings figures since before the financial crisis.
Another example is the UK's Metro Bank (LSE: MTRO). Before obtaining a rescue refinancing in 2023, it was on the verge of collapse. Over the past three years, the company has been refocusing. It reported record-breaking revenue in the first quarter, yielding a return on tangible equity of 6.4%; by 2028, management hopes to raise that to 18%.
Despite being very different organizations, Deutsche Bank and Metro Bank are both profiting from the same underlying trends that are serving as strong tailwinds for banking stocks. Metro reported a 22 percent increase in net interest income in its most recent results, while its net interest margina gauge of lending profitabilitycame in at 3.17 percent. Small business lending increased by 67%, while the bank reduced expenses by 7%. As they embrace and use AI, all major financial institutions are significantly cutting costs. According to US employment data, payrolls in the financial services and information technology sectors have declined by 28,000 per month on average in 2026 as AI adoption has accelerated.
US banks such as JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Goldman Sachs (NYSE: GS) have all said they will use AI to help employees crunch more data, and that will lead to job losses. As the bank accelerates the use of AI, Standard Chartered (LSE: STAN) declared in May that it would eliminate over 7,000 jobs over the following four years. As AI takes on more work, Morgan Stanley (NYSE: MS) has also announced plans to reduce its workforce by 3%.
UK stocks: Standard Chartered emblem.
Higher interest rates help banks.
For banking stocks, falling costs are just one factor to consider. Over the previous five years, they have also been able to benefit from the improved interest-rate environment. Fundamentally, banking is all about how much money lenders can make from the difference between savers' deposits and the money they lend to consumers or businesses. One of the most important metrics in banking is net interest margin, which is the difference between the cost of capital and interest received. McKinsey's 2026 Global Banking Annual Review states that the global bank net interest margin was 1.65 percent in 2024 and 1.63 percent in 2025. However, the margin increased by nine basis points in the US, seven in Japan, and six in the UK as the global rate decreased.
Even though central banks around the world have begun to lower interest rates from their peak in the years immediately following the pandemic, banking stocks are still benefiting from higher interest rates. The majority of banks borrow money in the short-term lending market before making longer-term loans to individuals or companies. As a result, it may take some time for changes in interest rates to permeate the system and help control risk. Additionally, banks take full advantage of so-called structural hedges, employing interest-rate swaps to turn exposure to fluctuating rates into fixed yields and stable low- or zero-rate customer deposits as long-term funding.
For instance, the largest mortgage lender in the UK, Lloyds Bank (LSE: LLOY), reported a net interest margin of 2.95 percent in 2024, 3.06 percent in 2025, and 3.17 percent in the first three months of 2026. Due to consumers rolling off long-term fixed mortgages at low rates and having to fix at a higher rate, the company has been able to make more money even as interest rates have dropped from a high of 5.25 percent in the first few months of 2024 to the current rate of 3.75 percent.
Banking stocks have benefited from expenses and increased interest rates, but so has the state of the economy. In actuality, the outcome has been quite different, despite worries that higher rates worldwide would cause a rise in defaults as businesses battled a higher cost of debt. The amount of money set aside to cover bad loans has decreased for all six of the major US banks that have released results thus far. Morgan Stanley reduced its credit provisions by fifty percent, Bank of America (NYSE: BAC), JPMorgan, Citigroup, and Wells Fargo (NYSE: WFC) all decreased their provisions by nine to fourteen percent, and Goldman Sachs reported a seventy-three percent decrease for the same period last year.
The demand for loans has grown concurrently. A strong economic recovery in the US has driven demand for business and consumer borrowing. Commercial loan growth has now surpassed 7% year over year for 14 consecutive weeks, according to Fitch Ratings' analysis of the major US lenders' results. For the second quarter, all of the biggest lenders reported double-digit loan growth, with some smaller banks reporting the highest growth since 2012. Despite pressure from the cost of living, demand has increased in the UK as well. Across Europe, demand for loans and credit lines has increased in every quarter since the second quarter of 2024 (apart from the first quarter of 2026), according to data from the European Central Bank. Overall, the need for loans rose by 3% during the second quarter of the year.
The Bank of America tower is situated in Miami, Florida's downtown.
Deals and stock trading reached all-time highs.
The biggest investment banks in the world have reported an increase in trading revenue this year thanks to the positive state of the world's equity markets. In the second quarter of 2026, Bank of America recorded a record £3.6 billion in equity trading revenue (up 70%) and £3.5 billion in fixed-income trading revenue. For the quarter, Goldman Sachs reported record equity trading revenue of £7.2 billion, up 72% from the previous year. Equity traders at JPMorgan Chase reported an 86% increase to £6 billion.
A record 2025 was followed by these figures. According to strategic benchmarking company BCG Expand, banks made £271 billion from international markets last year. That is £11 billion more than their highest level in recent memory from 2009. Last year, the markets between the five major US banks brought in £134 billion, 16% more than in 2024.
Deal makers are making a ton of money for these financial giants while traders trade. Bloomberg's data, which does not include SpaceX's merger with xAI, shows that approximately £1.7 trillion worth of deals have been announced thus far this year. Since 2021, the peak of the previous few decades, that is the fastest pace. Goldman Sachs is now clearly ahead. According to Dealogic data, the Wall Street bank has already provided advice on over £1 trillion worth of mergers and acquisitions this year. Dominion Energy's £118 billion sale to NextEra Energy and Unilever's £44.8 billion sale of its food division to McCormick are just two of the transactions the bank has assisted in advising on.
The majority of revenue from international equity trading and investment banking typically goes to these Wall Street banks, but European banks are typically more successful in wealth management, which has also seen a notable rise in profitability, especially among high-net-worth and ultra-high-net-worth individuals. Due to increased revenue from its investment bank and Global Wealth Management division, Swiss bank UBS (Zurich: UBSG) reported an 80 percent increase in net profit for the first quarter of the year. The bank's asset-management division added £14 billion in net new money, while Global Wealth Management's net new assets totaled £37.4 billion, which is equivalent to an annualized growth of 3.1 percent in transaction-based income. For the first quarter of 2026, UBS reported £7.1 billion in revenue from global wealth management, an increase of 11% from the previous year. At the end of the quarter, the group's invested assets totaled £6.9 trillion.
The asset and wealth management division of Deutsche Bank has also reported strong results. The bank reported a 7% increase in profit before taxes and a 2% increase in topline net revenue for the first three months of the year. The asset-management division saw a 10% increase in revenue and a 37% increase in profit before taxes as assets under management grew by 84 billion year over year, with additional net inflows of 11 billion during the quarter. This division also performed better thanks to a nearly 4 percent increase in client assets at Deutsche's private bank. Overall, the private bank's profit before tax increased by 39%.
Both of these banks prioritize the West. However, in developing and emerging markets like China and India, Standard Chartered and HSBC (LSE: HSBA) are better known for their investment banking and wealth management services.
Banks in Britain are appealing in their own right.
UK banks typically have smaller footprints in trading, wealth management, and private client and investment banking than their Wall Street and European counterparts. This dates back to the financial crisis, when banks like Lloyds and Royal Bank of Scotland (now NatWest; LSE: NWG) had significant international operations and trading businesses. Following the financial crisis, these were liquidated as lenders focused more on their primary business of lending money to savers.
Businesspeople strolling past a London Barclays location.
Despite having sizable trading arms, lenders like Barclays (LSE: BARC) and HSBC have never been able to compete in the same market as the Wall Street behemoths. However, UK banks have their own appealing features despite their lack of exposure to the Wall Street world. Analysts at Berenberg predict that banks' rolling structural hedges will provide the industry with consistent returns by guaranteeing about half of its revenue through the end of the decade.
Additionally, there is plenty of room for UK consumers and businesses to borrow more money. Household and corporate debt ratios are at the lowest levels of the past 25 to 30 years, while UK banks' average loan-to-deposit ratios sit at 90 percent, giving the sector plenty of headroom to increase borrowing. UK banks are trading at a 20% discount to the industry and only 7.5 times their two-year forward price-to-earnings (p/e) ratioa level not seen since late 2021. Although there is a lot of political and economic uncertainty surrounding the market, this discount doesn't seem justified.
Additionally, there is a lot of money to give investors back. Berenberg believes the average total yield of UK banks will rise to 10 percent-11 percent by 2028 compared with 7 percent-8 percent today, the total comprising a combination of dividends and share buybacks.
Because of Barclays' exposure to the US investment banking and trading industry, as well as NatWest, Berenberg likes the company. At its investment bank, Barclays has significantly increased profitability while maintaining low expenses. Investment banking and trading revenues have grown steadily since 2022, with the teams keeping up with peers at the Wall Street majors. Despite this progress, the bank trades at just 1.2 times tangible net asset value at the lower end of its European peer group. Based on its 14.3 percent return on tangible equity, Berenberg calculates that it should be trading closer to 1.6 times net asset value, indicating a 40 percent increase. As part of its expansion plans, the bank promised earlier this year to return £15 billion to shareholders.
In contrast, NatWest is trading at a 25% discount to the European banking industry average.
The most promising global banking players.
One of the more interesting global opportunities is Santander (LSE: BNC). This lender has a presence in the US, Europe, the UK and Southern and Central America, making it one of the few genuine global banking opportunities. The bank has 180 million customers around the world and wants to exceed 210 million by 2028. At the same time, it has laid out plans to generate 20 billion (growth of around 40 percent) in profit by 2028, to be helped by recent acquisitions such as Webster Financial in the US for £12 billion earlier this year and the TSB Bank in the UK. It expects all divisions, loans, wealth management and cross-border finance to contribute to this growth. Growth is just one part of the story. The other side is shareholder returns. The lender is nearing the end of a programme to return 10 billion through share buybacks for 2025 and 2026 and analysts believe it will rebuild this pipeline when the current authorisation has come to an end.
A pedestian passes a bank branch of Banco Santander SA in London, U. K.
UBS is another global player that analysts believe is undervalued. Now the group has fully completed the merger of Credit Suisse and removed unnecessary costs, it can concentrate on executing its strategy, growing the wealth-management business and its private bank. According to analysts' consensus estimates compiled by UBS, the bank is expected to post £10.7 billion of net income for 2026, rising to £14.4 billion in 2028. The wealth-management arm is projected to increase assets under management by around £1 trillion and see profit before tax nearly double from £5 billion to £10 billion by 2028. Based on these estimates, the shares are trading at a 2028 forward p/e ratio of around 9.5. Analysts have also pencilled in a reduction in outstanding share capital of around 10 percent and expect the dividend per share to rise 40 percent to £1.58 over the same period.
A shower of cash for shareholders.
Of the large US banks, the cheapest is Citigroup. Trading at 1.2 times book value, the bank has long struggled to live up to the lofty expectations of the market. Its peers, Goldman and Morgan Stanley, are trading at 2.8 and 3.3 times book value, respectively. Still, the bank is benefiting from many of the tailwinds helping its peers. Markets and equities trading revenues were up 17 percent and 45 percent respectively in the second quarter, while the group's cost-to-income ratio came in at 57.4 percent compared to a full-year target of 60 percent.
In the first half, Citi booked a 13 percent return on tangible capital employed and is saying it expects 10 percent-11 percent for the full year, which suggests it's around a third less profitable than major peers such as Goldman Sachs based on this measure. That deserves a lower valuation, but a discount of more than 50 percent seems too steep. With a solid Tier-1 capital ratio of 12 percent, the bank was able to declare a £30 billion multi-year share repurchase programme following the successful completion of the Federal Reserve's supervisory test earlier this year.
Citi's cash returns are emblematic of the sector. In the first quarter of this year, the eight largest US banks showered shareholders with £46 billion in dividends and buybacks, up a third from last year. European banks are expected to return 123 billion this year. It's time for investors to sit up and take notice.
The lender is earning a 20 percent return on tangible equity and is reporting strong organic capital generation. Organic capital generation is expected to exceed 200 basis points per annum over the next few years, which should help fund growth, distributions and potential bolt-on acquisitions. The shares are currently trading at a 2028 p/e of just 6.5 and offer a potential forward dividend yield of 7.5 percent. The recent acquisition of Evelyn Partners will also help the company expand its footprint in the lucrative wealth-management business.
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