Rate Cuts Coming: Which Big Bank Gets the Real Edge—Bank of America or Wells Fargo?

Question

With the Fed ready to cut rates, two heavyweight banks are attracting serious attention: Bank of America (BAC) and Wells Fargo (WFC). Both are rate-sensitive players, but they’re entering this cycle from very different positions. Here’s what makes this matchup interesting.

The Playing Field

First, the baseline: both stocks have had a solid run in 2025. BAC is up 18.2%, while WFC gained 20.4%—solid but not explosive. On valuation, they’re neck-and-neck in the reasonable zone. BAC trades at 12.11X forward P/E, WFC at 12.31X, both below the banking sector average of 13.93X. Dividend-wise, they’re trading near-identical yields (BAC 2.16% vs WFC 2.13%), both crushing the S&P 500’s 1.52%.

Here’s where things diverge: WFC’s ROE sits at 12.51% compared to BAC’s 10.76%. WFC is squeezing more profit per dollar of shareholder equity—but is that sustainable?

Why BAC Has Momentum

Bank of America’s strategy is straightforward: leverage scale. The bank is targeting 12%+ earnings growth over the next 3-5 years with ROTCE between 16-18%. That’s not pie-in-the-sky—they’re backing it with concrete moves.

When rates drop, BAC’s playbook includes:

Branch blitz: Opening 150+ financial centers by 2027 to capture more lending and cross-sell opportunities
Digital-first approach: Boosting digital adoption to drive NII without proportional cost increases
Loan growth: As easing regulatory capital requirements free up excess capital, expect aggressive lending in resilient segments
Investment banking rebound: M&A is heating up as economic clarity returns; BAC targets mid-single-digit CAGR in IB fees

Consensus estimates show BAC revenue growth of 7.2% (2025) and 5.7% (2026), with earnings climbing 15.6% and 14.5% respectively. Net interest income is projected to grow 5-7% in 2026.

WFC’s Wild Card: The Asset Cap Lift

Wells Fargo has been playing with one hand tied behind its back since 2018. Now that the asset cap is gone (June 2025), the bank is unleashed.

The bank’s approach to rate cuts focuses on:

Deposit warfare: Aggressively competing for deposits as funding costs normalize
Balanced loan expansion: Growing consumer and corporate loan books without overextending
Diversification over NII: Since NIM compression is inevitable, WFC is doubling down on fee-generating franchises—investment banking, trading, wealth management, payments
Margin resilience: Management expects 2025 NII roughly flat year-over-year, a sign they’re managing the transition carefully

For earnings, WFC consensus shows 17% growth in 2025 and 10.8% in 2026. Revenue growth is more modest: 2.1% (2025) and 5.4% (2026)—a red flag compared to BAC’s trajectory.

The Real Difference

Both banks benefit from falling rates. Both have compelling growth angles. But here’s the critical gap:

BAC’s earnings are expected to sustain higher growth (14.5% in 2026 vs WFC’s 10.8%), supported by clearer revenue expansion and a proven efficiency playbook. The bank’s NII outlook—5-7% growth—provides a tangible tailwind.

WFC is in transition mode. Yes, the asset cap lift is huge, but the bank still needs to prove it can convert that freedom into durable earnings power. Management’s “roughly stable” NII guidance for 2025 suggests they’re being conservative, which is prudent but doesn’t scream growth catalyst.

The Verdict

In a rate-cut cycle, scale and proven execution matter more than potential. Bank of America’s medium-term targets (12%+ earnings growth, 16-18% ROTCE) backed by concrete initiatives (branch expansion, digital scale, capital deployment) create a clearer earnings trajectory. Wells Fargo’s upside is there, but it’s more dependent on successful execution of a expanded business model.

Both carry a Zacks Rank #3 (Hold), but if forced to pick the better risk-reward, BAC edges out WFC as rates decline. The bank’s ability to grow NII while expanding scale gives it the extra gear when the Fed starts easing.

Watch Q1 earnings closely—they’ll reveal which bank is actually converting macro tailwinds into shareholder value.