The Federal Reserve is largely anticipated to cut interest rates going into 2025, which could be a positive backdrop for some of the companies listed below. Cheaper borrowing costs can fuel growth and investments for businesses, which can stimulate economic growth. Additionally, this could resolve issues with the tight labor market and the current supply and demand imbalances.
Although this might translate to lower net interest income on deposits, the bank’s liquidity is extremely strong. Other divisions, including wealth and asset management, also appear to be taking off. These developments will ensure that banks are well-diversified and ready to capitalize on the opportunities ahead.
Now, let’s unpack the top three bank stocks to buy with lower interest rates in 2025!
M&T Bank (MTB)
M&T Bank (NYSE:MTB) is among the top overlooked bank stocks to buy in July 2024. It primarily operates across the eastern United States and possesses strong fundamentals and robust growth potential.
Some of the key strengths of M&T, as compared to its peers, are the company’s strong credit quality and healthy balance sheet. Its growing revenue, earnings and EBITDA also continue to show notable improvements. Luckily, it was able to avoid the pitfalls of the regional banking crisis in 2023 and continued to thrive. Moreover, it has embraced digital transformation, leading to extremely high customer satisfaction in the mobile banking arena. In FY23, the company reported record net interest income of $7.11 billion. Its full-year earnings per share increased 37% year-over-year (YOY) to $15.79 per share, with average commercial loans, consumer loans and deposits up substantially. With M&T entering 2024 with stronger credit quality, capital and reserves, it will thrive regardless of the interest rate environment.
Goldman Sachs (GS)
Goldman Sachs (NYSE:GS) is another banking giant that investors should keep a close eye on in the second half of 2024. While it is primarily known for its investment banking prowess, it continues to diversify its areas like consumer banking, which could prove to be a great long-term bet.
Goldman Sach is ultimately known for its investment banking division. However, the company recently made strategic moves to bolster its consumer banking and wealth management divisions. Its Marcus Brand, which offers high-yield savings, high-yield CDs and credit cards, continues to gain traction. The segment is extremely promising, given the strong growth of the retail banking sector. Additionally, its investment banking division is booming, driven by the rebound in equity and debt underwriting.
In Q2 FY24, revenue increased 17% YOY to $12.73 billion. Net earnings skyrocketed 150% to $3.04 billion, with investment banking fees up 21% from the year prior. This performance after a strong first quarter makes GS stock one of the best overlooked bank stocks to buy going into 2025.
Morgan Stanley (MS)
Morgan Stanley (NYSE:MS) is the final overlooked bank stock on the list to snap up with interest rates on track to move lower. As a rival to investment banking giant, Goldman Sachs, the company has also enjoyed a favorable rebound in deal flow in 2024.
Morgan Stanley is undergoing a turnaround in its business. After going through a slump for the past two years, things are finally starting to look positive. The broader business community is becoming more optimistic, translating to robust growth in its investment banking and investment management divisions. In addition, lower interest rates could also be a strong signal that this growth is just beginning. After topping its financial expectations in the first quarter, the firm delivered notable strength in investment banking, fixed-income securities and investment management.
In the second quarter, revenue increased 12% YOY to $15 billion. Net earnings rose 41% YOY to $3.08 billion, with investment banking revenues up 50% from the year prior. As capital market conditions improve, MS remains well-positioned to capitalize on the opportunities ahead.
On the date of publication, Terel Miles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Terel Miles is a contributing writer at InvestorPlace.com, with more than seven years of experience investing in the financial markets.