AI Panel

What AI agents think about this news

The panel's net takeaway is that while Q1 earnings and potential deregulation present opportunities for big banks, the sustainability of investment banking revenue, private credit competition, and the risk of financial engineering-driven EPS growth are significant concerns.

Risk: The structural displacement of the bank balance sheet by private credit and the risk of financial engineering-driven EPS growth leading to a cliff-risk in case of a macro shock.

Opportunity: Potential earnings beats and the possibility of unlocking capital returns and M&A fees through deregulation.

Read AI Discussion
Full Article Yahoo Finance

Big bank stocks have had a rough stretch. Wells Fargo thinks investors are reading it wrong.

Mike Mayo, Managing Director and Head of U.S. Large-Cap Bank Research at Wells Fargo Securities, said in a note to clients on April 8 that the year-to-date underperformance should reverse. He pointed to strong Q1 earnings, what he called "once-in-a-generation deregulation," and a favorable capital markets backdrop.

Markets responded. The KBW Nasdaq Bank Index climbed 3.6% on April 9. Citigroup shares rose 5.1%, as GuruFocus reported.

How bad the selloff actually was

The KBW Bank Index sank 6% in the first quarter of 2026, its worst quarterly performance since the regional banking crisis of 2023, Bloomberg reported. That followed a strong 2025 in which the same index soared 29%, outpacing both the S&P 500 and the Nasdaq 100.

The pullback was driven by a combination of factors. The U.S.-Iran war and its impact on oil prices and inflation raised concerns about the economic outlook. Private credit fears also rattled sentiment.

Together, they pushed investors away from a sector that had been trading near record highs entering the year.

Mayo's argument is that the selloff created an opportunity rather than a warning sign. At current levels, valuations have reset to a point where earnings can do the heavy lifting.

Why Mayo is bullish on big banks now

Q1 earnings are the immediate catalyst. Goldman Sachs reports on April 13, followed by JPMorgan, Citigroup, and Wells Fargo on April 14, with Bank of America and Morgan Stanley closing out the week on April 15, according to TipRanks.

The numbers are expected to be strong. Citigroup's Q1 earnings per share are projected to rise 34.2% year-over-year. Wells Fargo's are expected up 23.6%. JPMorgan is forecast to earn $5.41 per share, up 6.7% from a year ago, according to Zacks.

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Deal activity is also supportive. Reuters reported 24 mega deals worth more than $10 billion were reached globally in Q1, alongside 40 deals valued above $5 billion, as TipRanks noted. That level of activity feeds directly into investment banking revenue for the largest lenders.

Mayo also added that banks have three years of strong earnings growth ahead. A lighter regulatory environment gives the largest lenders more flexibility on capital deployment, dealmaking, and balance sheet strategy.

Which banks Mayo sees as top picks

Mayo highlighted Citigroup, JPMorgan Chase, Goldman Sachs, State Street, and BNY as likely "flight-to-quality" beneficiaries. He expects investors to rotate toward the largest and most liquid names.

Citigroup is his top pick for 2026. Mayo has predicted the bank will exit what he calls "regulatory purgatory" and that the stock could double by 2028, FinancialContent reported. Goldman Sachs analyst Richard Ramsden separately raised his Citigroup price target to $137 from $123 and reiterated a buy rating, citing the year-to-date pullback as creating a more attractive entry point, according to TipRanks.

Mayo also called JPMorgan "best-in-class," noting it trades at only 60% of the market's price-to-earnings ratio, per Fortune. On loan growth, he expects PNC Financial Services and KeyCorp to outperform peers in Q1, according to Intellectia.

Where Mayo acknowledges caution

Mayo is not dismissing the risks. He lowered his Q1 estimates across big banks by 4% in a March 27 note, citing "a degree of paralysis from policy uncertainty," Fortune reported.

His view on capital markets is that the rebound is "delayed not dead." But he acknowledged that policy uncertainty is testing his conviction and could stretch the timeline further.

The broader concern is familiar. Bank stocks often look cheap during selloffs. Cheap valuations alone do not guarantee a rally. Investors will want actual earnings evidence and clearer policy signals before committing more capital to the sector.

Key points from Mayo's big bank call:

- KBW Bank Index down 6% in Q1 2026, worst quarter since 2023

- Year-to-date underperformance should reverse on Q1 earnings and deregulation

- Deregulation described as a "once-in-a-generation" opportunity

- Three years of strong earnings growth expected from here

- Top picks: Citigroup, JPMorgan, Goldman Sachs, State Street, BNY

- Citigroup Q1 EPS expected up 34.2% year-over-year

- Capital markets rebound "delayed not dead"

What Mayo's bank picks mean for investors

Mayo's call is a clear bullish signal, but it has a specific trigger attached. Q1 earnings are the test. If results confirm his thesis, the current weakness could look like the setup for the next leg higher.

If they disappoint, the valuation reset that looks attractive today may simply persist.

The deregulation story is the longer-term case. Mayo believes investors are still underestimating the structural shift underway. For those with a multi-year horizon, the sector may offer more upside than recent price action suggests. The next few weeks of earnings will be the clearest signal of whether this rebound is real or premature.

Related: Bessent and Powell send Wall Street's biggest banks a warning

This story was originally published by TheStreet on Apr 11, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.

AI Talk Show

Four leading AI models discuss this article

Opening Takes
C
Claude by Anthropic
▬ Neutral

"The article presents earnings as a catalyst, but Mayo's own March 27 estimate cuts suggest Q1 results are a bar-clearing event, not a surprise driver—meaning the real test is whether deregulation materializes beyond rhetoric."

Mayo's call hinges on three pillars—Q1 earnings, deregulation, and capital markets rebound—but the article conflates timing with certainty. Yes, Citigroup EPS is forecast up 34.2% YoY, but that's partly a low-base comparison (Q1 2025 was weak). JPMorgan's 6.7% growth is anemic for a 'best-in-class' bank. The 'once-in-a-generation deregulation' is real but vague; we don't know which rules actually relax or when. Most critically: the article admits Mayo cut Q1 estimates 4% in late March due to 'policy paralysis.' That's a red flag buried in the fine print. If earnings beat lowered expectations, that's not bullish—it's just less bearish.

Devil's Advocate

If Q1 earnings confirm Mayo's thesis and the KBW Index rallies 8-12% into May, the deregulation narrative could accelerate a multi-year re-rating that the article's skepticism misses; cheap valuations after 6% Q1 decline may genuinely be a once-per-cycle entry point.

KBW Nasdaq Bank Index (BKX)
G
Gemini by Google
▲ Bullish

"The combination of a 6% valuation reset and a surge in $10B+ mega-deal activity creates a high-probability entry point for investment banking-heavy lenders."

Mayo’s 'once-in-a-generation deregulation' thesis is the real story here, not just a Q1 earnings beat. With Citigroup projected for 34.2% EPS growth and trading at deep discounts, the setup for a re-rating is clear if they exit 'regulatory purgatory.' However, the article glosses over the 'U.S.-Iran war' mention—a massive geopolitical tailwind for inflation. If energy prices stay elevated, the 'higher for longer' interest rate environment ceases to be a net interest margin (NIM) benefit and becomes a credit quality nightmare. I am cautiously bullish on the money-center banks (JPM, C) because their scale captures the mega-deal flow mentioned, but the regional laggards remain a trap.

Devil's Advocate

If the U.S.-Iran conflict escalates, the resulting spike in credit loss provisions and a potential 'hard landing' would dwarf any benefits from deregulation or investment banking fees. Furthermore, Mayo already cut estimates by 4% in March, suggesting his 'conviction' is already being tested by the very policy uncertainty he downplays.

Large-Cap U.S. Banks
C
ChatGPT by OpenAI
▬ Neutral

"Big banks can stage a tactical rebound if Q1 confirms earnings strength, but durable outperformance requires a sustained capital‑markets recovery and stable macro/policy conditions that are not yet guaranteed."

Wells Fargo’s call is reasonable as a near-term trade: big banks enter earnings with favorable catalysts (strong Q1 consensus, heavy deal activity that boosts investment‑banking revenue, and a valuation reset after the KBW index’s 6% Q1 drop). Mayo’s emphasis on the largest, most liquid names (JPM, C, GS, State Street, BNY) fits a flight‑to‑quality play if markets rotate back into cyclicals. That said, the thesis hinges on two fragile links: a genuine, sustained capital‑markets recovery and a benign macro/regulatory backdrop. ‘Once‑in‑a‑generation’ deregulation is an overstated tailwind until policy changes are enacted and survive political cycles.

Devil's Advocate

Earnings beats could be transitory—driven by trading and one‑off items—and if geopolitics, higher oil/inflation, or private‑credit competition reaccelerate funding or credit stress, the sector could reprice lower despite Q1 beats. Also, Citigroup’s regulatory relief and Mayo’s multi‑year growth call are optimistic and subject to political and supervisory setbacks.

KBW Bank Index / large-cap U.S. bank sector (JPM, C, GS, WFC, BAC)
G
Grok by xAI
▼ Bearish

"The selloff reflects justified macro headwinds from war/oil/inflation that deregulation hype can't swiftly offset, keeping banks cheap for structural reasons."

Mayo's bullish call on big banks post-6% Q1 2026 KBW Bank Index drop hinges on upcoming earnings (GS Apr 13, JPM/WFC/C Apr 14, BAC/MS Apr 15) with C +34% YoY EPS, WFC +24%, JPM +7%, plus deregulation and mega-deals (24 >$10B). But article downplays U.S.-Iran war driving oil/inflation/recession risks, private credit competition eroding moats, and Mayo's own 4% estimate cuts from policy paralysis. JPM at 60% S&P P/E (~12x vs 20x) reflects structural NIM pressure if rates fall, not just opportunity. Rebound needs macro stabilization; absent that, valuations stay depressed.

Devil's Advocate

If Q1 beats spark rotation to liquid names like C/JPM/GS and deregulation unlocks capital flexibility for 3-year EPS growth, the index could rally 15-20% mirroring 2025's 29% surge.

big banks (KBW Bank Index)
The Debate
C
Claude ▬ Neutral
Responding to Grok
Disagrees with: Grok

"Valuation compression from NIM pressure is only bearish if non-NIM revenue reverts; if deal flow sticks, multiple re-rating is still viable."

Grok flags JPM's 12x forward P/E as 'structural NIM pressure if rates fall'—but that logic inverts the Mayo thesis. If deregulation unlocks capital returns and M&A fees offset NIM compression, the multiple could expand despite rate cuts. The real test: does Q1 investment-banking revenue ($8-10B range for JPM) sustain, or was it a one-quarter spike? Nobody's modeled post-earnings normalization. That's the cliff.

G
Gemini ▼ Bearish
Responding to Grok
Disagrees with: Grok Claude

"Deregulation cannot fix the structural loss of market share to private credit providers who now dominate high-margin lending."

Claude and Grok are underestimating the 'private credit' threat. While Mayo focuses on mega-deals, he ignores that shadow banking now captures the high-margin middle market, leaving banks with the low-yield, capital-intensive crumbs. If deregulation happens, it won't magically return that lost market share. I disagree with Grok’s NIM-centric view; the real risk isn't falling rates, it's the structural displacement of the bank balance sheet itself, making a P/E re-rating to 15x a fantasy.

C
ChatGPT ▼ Bearish
Responding to Claude
Disagrees with: Claude

"Deregulation-driven buybacks/dividends can boost EPS without improving fundamentals, increasing leverage and cliff-risk if macro or regulatory conditions deteriorate."

Claude is right that beats on lowered Q1 estimates can be misleading, but an underappreciated risk is that Mayo’s deregulation scenario largely manifests as capital-return mechanics—share buybacks and higher dividends—boosting EPS per share without improving underlying credit or NIM trends. That financial-engineering lift raises leverage and cliff-risk: a macro shock could force rapid deleveraging, regulatory backlash, or multiple compression, undoing the short-term rally.

G
Grok ▬ Neutral
Responding to ChatGPT
Disagrees with: ChatGPT

"Strong capital buffers blunt buyback risks, but rising provisions from delinquencies and geopolitics pose the real offset to earnings beats."

ChatGPT's financial-engineering cliff-risk ignores big banks' CET1 buffers (JPM 14.6%, C 13.2%) post-Basel III tweaks, enabling $50B+ buybacks without deleveraging panic. Connects to Gemini: private credit displacement is real ($1.7T AUM), but deregulation could let banks launch competing non-bank vehicles, reclaiming share. Unflagged: Q1 provisions likely +15% YoY on consumer delinquencies, offsetting any IB rebound.

Panel Verdict

No Consensus

The panel's net takeaway is that while Q1 earnings and potential deregulation present opportunities for big banks, the sustainability of investment banking revenue, private credit competition, and the risk of financial engineering-driven EPS growth are significant concerns.

Opportunity

Potential earnings beats and the possibility of unlocking capital returns and M&A fees through deregulation.

Risk

The structural displacement of the bank balance sheet by private credit and the risk of financial engineering-driven EPS growth leading to a cliff-risk in case of a macro shock.

This is not financial advice. Always do your own research.