By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel consensus is that JPM and BAC may not be well-positioned to outperform in deteriorating credit conditions in H2 2026, despite their diversified revenue streams and higher net worth clients. The key risks include sharp loan-loss provisions, deposit flight, and regulatory capital constraints, while the main opportunity is distressed M&A activity, which is contingent and delayed.
Risk: Sharp loan-loss provisions due to faster-than-expected GDP and job growth slowdown, and substantial commercial real estate exposure.
Opportunity: Distressed M&A activity, although it is contingent and delayed.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Credit conditions are expected to further deteriorate in the second half of 2026.
The uncertain environment will favor larger banks.
These two mega banks look like the best buys in the banking industry right now.
Large U.S. banks generally had a strong first quarter with rising loan activity, robust investment banking, increasing revenue, strong earnings, and stable or benign credit conditions.
Yet the solid results didnʻt do much to raise the needle for bank stocks. In fact, many of them ticked lower post-earnings. The KBW Nasdaq Bank Index, which tracks the largest banks, is down about 2% over the past month and is in negative territory year-to-date.
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This pessimism from investors is most likely related not to Q1 earnings results but to what could happen in the second half of 2026. Specifically, many experts point to deteriorating credit conditions in the second half of the year.
The American Bankers Associationʻs first-quarter Credit Conditions Index signaled that credit conditions will likely deteriorate over the next six months. Its Consumer Credit Index was worse, dropping 1.7 points in Q1 to 33.3. Anything over 50 means credit conditions are improving, while a score below 50 means they are deteriorating. The Business Credit Index was in much better shape, with a score of 41.7, up 1.7 points in Q1.
Worsening credit conditions could slow loan growth, reduce net interest income, and lead to higher loan-loss provisions, thereby dragging on earnings. Indicators like job growth, gross domestic product, and inflation will affect credit conditions.
The uncertain and tenuous state of the economy and credit environment decidedly favors the larger banks for several reasons. One, they serve more businesses and higher-net-worth individuals than smaller banks, so their clientele will not be hit as hard by economic headwinds. Two, they have a broad array of services, including investment banking, wealth management, and institutional trading, which can help offset any weakness in consumer lending.
With interest rates not expected to drop more than once this year, a higher-for-longer rate environment will favor larger banks. It will allow them to maintain higher loan rates and fairly low deposit yields, as customers tend to flock to larger banks as safe havens during uncertain markets.
Considering these factors, investors may find the best banks to invest in right now are the two largest, JPMorgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC). Both of these firms will likely generate higher net interest income in 2026, with JPMorgan Chase targeting an 8% increase from 2025 and Bank of America projecting a 6%-8% rise. Both banks also have strong balance sheets, with high liquidity and capital buffers, to help them navigate a softening in the credit environment.
JPMorgan Chase and Bank of America stocks trade fairly cheaply at the moment, with JPMorgan Chase trading at 13 times forward earnings and Bank of America at 11 times forward earnings. Wall Street targets both as consensus buys, with JPMorgan Chase stock expected to increase 16% and Bank of America stock projected to rise 24% over the next 12 months.
In a time of economic uncertainty, these two banks should be able not only to navigate the choppy waters but also to catch some tailwinds.
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Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Projected NII growth at JPM and BAC may prove insufficient to offset higher provisions if credit metrics weaken beyond current ABA forecasts."
The article argues that worsening credit conditions in H2 2026, per the ABA index, will favor JPM and BAC due to their diversified revenue streams, higher-net-worth clients, and safe-haven deposit flows in a higher-for-longer rate environment. It highlights their NII growth targets of 8% and 6-8% respectively, plus cheap valuations at 13x and 11x forward earnings. Yet this overlooks how sharply rising loan-loss provisions could still offset those gains if GDP and job growth slow faster than expected. Large banks also carry substantial commercial real estate exposure that smaller regional banks shed post-2023.
If credit deterioration triggers a broad recession rather than a mild slowdown, even JPM and BAC could face outsized provisions that erase NII upside, while investment banking fees collapse with volatile markets.
"The article conflates 'larger banks survive better' with 'larger banks are cheap now,' ignoring that 11-13x forward multiples already price in significant credit deterioration, leaving minimal margin of safety if H2 2026 credit stress exceeds consensus expectations."
The article's core thesis—that mega-banks outperform in deteriorating credit conditions—rests on a logical inversion. JPM and BAC trade at 13x and 11x forward P/E respectively, yet the article itself flags that credit conditions will worsen in H2 2026, which historically compresses bank multiples as loan-loss provisions spike. The article acknowledges this headwind but then dismisses it via hand-waving about 'diversified revenue streams.' The real risk: if the Consumer Credit Index (33.3) continues deteriorating, even wealth management and investment banking won't fully offset NII compression and credit costs. The 6-8% NII growth projections assume rates stay higher-for-longer, but if recession fears intensify, deposit flight to Treasuries could actually *lower* yields on both sides of the balance sheet.
If credit conditions do deteriorate sharply, larger banks' scale and diversification genuinely do provide a moat—smaller regional banks could face deposit runs and forced asset sales, while JPM/BAC absorb deposits and maintain pricing power, making their relative valuation a legitimate flight-to-safety trade.
"Market valuations for JPM and BAC fail to price in the potential compression of net interest margins caused by rising loan-loss provisions and the inevitable cost of deposit retention as credit conditions deteriorate."
The article's thesis relies on a 'flight to safety' narrative for JPM and BAC, but it ignores the significant duration risk embedded in their balance sheets. While higher-for-longer rates support net interest income (NII), they simultaneously depress the value of legacy fixed-rate assets and increase the cost of deposit retention. At 13x and 11x forward P/E, these banks aren't necessarily 'cheap' if we account for the rising cost of risk in the second half of 2026. If the American Bankers Association’s credit indices are accurate, we should expect a sharp uptick in loan-loss provisions that will likely erode the projected 6-8% NII growth, making current valuations look optimistic rather than defensive.
The 'fortress balance sheet' argument for JPM is historically robust; in a true credit crunch, these banks gain market share as regional competitors are forced to tighten lending standards aggressively.
"The biggest risk to the bulls' view is that a sharper-than-expected credit cycle and loan-loss provisioning could erase the NII upside and compress earnings, undermining the logic that JPM and BAC are the safest 2026 bets."
The article leans into a 'big banks win in uncertainty' narrative, singling out JPMorgan Chase and Bank of America as the best 2026 bets due to higher net interest income in a higher-for-longer rate regime and strong balance sheets. But the strongest counter: a meaningful credit-cycle deterioration could hit faster than expected in H2 2026, forcing larger loan-loss provisions and weaker loan growth; deposit-cost pressures and a potential drop in non-interest income would squeeze earnings, and cheap multiples may already reflect that risk. The piece omits stress tests, regulatory/scenario risk, and liquidity dynamics that could cap upside.
Against that bear case, JPM and BAC benefit from scale, diversified fee income, and ample liquidity that tends to cushion losses; in a mild downturn they can still deliver earnings and potential multiple support, making the downside arguably limited.
"JPM's IB franchise offers fee upside from distress activity that offsets credit costs beyond deposit dynamics."
Claude flags deposit flight risks under recession fears, yet this underplays how JPM's investment banking pipeline could expand via distressed M&A and restructuring mandates that typically accelerate in H2 2026 credit stress. Those fees carry higher margins than NII and would offset provision spikes more effectively than the article or Claude's NII focus assumes. The 13x multiple already embeds some of this optionality.
"Distressed M&A fees are a lagging indicator, not a concurrent offset to H2 2026 provision spikes."
Grok's distressed M&A upside is real, but it's a *timing* gamble. Restructuring mandates spike 6-12 months *after* credit stress peaks, not during it. If H2 2026 deterioration accelerates faster than expected, JPM faces provisions *now* while fee upside remains contingent and delayed. The 13x multiple doesn't adequately compensate for that lag risk, especially if recession fears trigger equity market volatility that suppresses advisory activity altogether.
"Regulatory capital requirements will likely offset any margin gains from distressed M&A, capping the upside for JPM and BAC."
Claude is right about the timing lag, but both miss the regulatory capital constraint. Even if JPM captures distressed M&A, Basel III endgame requirements force them to hold more capital against those risk-weighted assets. This limits the buyback capacity that typically supports these 11x-13x valuations. If credit deteriorates, the 'fortress balance sheet' isn't just a buffer; it's a drag on ROE because capital is locked up in reserves rather than deployed for share repurchases or growth.
"Distressed M&A revenue is a timing risk, not a reliable hedge against provisioning spikes in a sharper credit downturn."
Grok overestimates distressed M&A as a cushion. In a sharper-than-expected H2 2026 credit shock, restructuring work tends to lag the spike in provisions and deal flow can dry up in volatile markets. Basel III capital rules also constrain buybacks and risk-taking, limiting ROE upside. So the “offset” risk is more a timing risk than a durable hedge; the earnings upside hinges on both favorable timing and liquidity conditions materializing.
The panel consensus is that JPM and BAC may not be well-positioned to outperform in deteriorating credit conditions in H2 2026, despite their diversified revenue streams and higher net worth clients. The key risks include sharp loan-loss provisions, deposit flight, and regulatory capital constraints, while the main opportunity is distressed M&A activity, which is contingent and delayed.
Distressed M&A activity, although it is contingent and delayed.
Sharp loan-loss provisions due to faster-than-expected GDP and job growth slowdown, and substantial commercial real estate exposure.