Bigger banks earning higher multiples

A bank with a $4.4 trillion balance sheet can trade richer than a bank with a $574 billion balance sheet even if both are doing the same basic job: taking deposits and making loans. In U.S. bank stocks, investors have recently paid up for the biggest franchises because they produce more income streams per dollar of equity and absorb fixed costs across a much larger base. (jpmorganchase.com) (sec.gov) The shorthand investors use is price to tangible book value, which compares a bank’s stock price with the hard equity left after stripping out goodwill and other intangibles. The other shorthand is return on tangible common equity, which asks how much profit the bank generates from that tangible equity base. (jpmorganchase.com) (nasdaqomx.com) That link is why higher-quality banks usually get higher multiples. If a bank can earn 18% to 20% on tangible equity year after year, investors will usually pay more than tangible book for it; if it earns 10% to 12%, the multiple is usually lower because each dollar of equity compounds more slowly. (jpmorganchase.com) (sec.gov) JPMorgan Chase makes the contrast easy to see. In 2025 it reported return on tangible common equity of 20%, tangible book value per share of $107.56, deposits of $2.56 trillion, and market capitalization of $868.8 billion. (jpmorganchase.com) PNC Financial Services, a strong regional bank but a much smaller one, reported 2025 revenue of $23.1 billion, deposits of $440.9 billion, tangible book value per share of $112.51, and return on average common equity of 12.9%. That gap in scale and returns is the basic reason the market does not value every dollar of bank equity the same way. (sec.gov) The biggest banks also collect more fee income that does not depend on the spread between loan yields and deposit costs. Bank of America said 45% of its 2024 revenue came from fees rather than net interest income, with businesses spanning wealth management, investment banking, markets, and transaction services. (investor.bankofamerica.com) That mix matters when rates move. A lender that relies mostly on plain-vanilla loans and deposits can see earnings swing hard when funding costs rise, while a bank with card fees, advisory fees, trading revenue, asset management fees, and treasury-service fees has more shock absorbers. (investor.bankofamerica.com) (wellsfargo.com) Operating leverage is the next piece. If a giant bank spends billions on technology, compliance, fraud systems, and product platforms, it can spread those costs across tens of millions of customers and trillions of dollars of assets; Bank of America said it spent nearly $4 billion on new initiatives in 2024 as part of a broader $12 billion technology budget. (investor.bankofamerica.com) Funding stability is another reason size gets rewarded. After the 2023 regional-bank panic, investors put a higher premium on banks with broad consumer deposit bases, multiple business lines, and deep liquidity buffers; JPMorgan’s average liquidity coverage ratio was 111% in 2025, above the 100% regulatory minimum. (jpmorganchase.com) (ecfr.gov) There is a catch: the very biggest banks also carry the heaviest regulation. The Federal Reserve says eight U.S. banks were in its Global Systemically Important Banks program as of February 2026, and those firms face the highest standards for capital, liquidity, resolution planning, risk management, and stress testing. (federalreserve.gov) So when a bigger bank still earns a better return after carrying that extra regulatory weight, investors tend to see the franchise as unusually strong. That is why “bigger banks earning higher multiples” is usually less about size by itself and more about what size buys: steadier fees, stickier funding, wider distribution, and higher returns on tangible equity. (federalreserve.gov) (jpmorganchase.com)