From the studio

**Video: CIO's Delwin Limas on AI opportunities (**7 min)
Podcast: Why we upgraded Chinese equities to Attractive (12 min)
Podcast: Signal over Noise with CIO's Ulrike | | (6 min)

Thought of the day

Shares of global and US regional banks staged a partial recovery at the end of last week, as third-quarter earnings results provided some reassurance that credit losses in several US regional banks appear isolated events rather than signs of systemic concern. The US KBW Regional Banking Index closed 1.7% higher on 17 October, recouping some ground after a 6.3% loss on the prior trading day, while the KBW Bank Index of large-cap US banks rallied 0.6% on Friday after a 3.6% fall on Thursday.

Banking stocks, especially select US regional banks, underperformed significantly after Zions Bancorp and Western Alliance Bancorp disclosed losses tied to potential fraud involving loans to funds investing in distressed commercial mortgages. These losses coincided with heightened investor anxiety about credit quality, given recent high-profile bankruptcies for a number of private-credit-backed US companies in the autos sector.

But we believe that the outlook for global banks may be improving and that their stocks may now provide attractive entry points for investors:

Global banks should deliver improving profitability and returns. Global banks’ average return on equity (ROE) has risen from 9% in 2011 to 11.5% in 2025. This improvement stems from an overhaul of regulatory frameworks, deleveraging, capital rebuilds, and strategic realignment that has resulted in institutions that are better capitalized, more liquid, and have more resilient balance sheets. Going forward, data from Factset and MSCI World Banks suggest further improvement in ROE to 11.9% in 2026 and 12.2% in 2027, marking a return to delivering shareholder value above the cost of equity—a milestone not seen since before the 2008 financial crisis.

Banks’ income channels are showing signs of improvement and broadening. We expect global banks to benefit from normalized yield curves, structural hedge portfolios, and ongoing volume growth. For illustration, among the 195 global banks covered by ۶Ƶ Investment Bank, we estimate average loan growth of 6% in 2026 and 5% in 2027. Additionally, as low-yielding assets from the pandemic era are replaced with higher-yielding ones, net interest margins should continue to rise steadily. Additionally, fee income, which accounts for about a third of total net operating income, is benefiting from increased market activity and rising household wealth. Wealth management businesses are seeing strong financial wealth growth and releveraging as rates fall.

The regulatory environment should become more supportive. We expect regulators, especially in the US, to adopt a more pragmatic approach to regulation that can free up capital for banks to return to shareholders. Shifts in capital rules may release an estimated USD 200-300bn of excess capital among US global systemically important banks (GSIB) alone, equivalent to more than 10% of market capitalization. As economic and capital market clarity improves, management teams have the potential either to return excess capital to return to shareholders (via buybacks or special dividends) or to invest in inorganic growth through mergers and acquisitions.

So, we remain vigilant to the potential for further high-profile credit events, the potential for headline risks to weigh on investor sentiment (especially if isolated incidents begin to cluster), and for any signs of broader credit deterioration in industry delinquency data. But overall, we note the sector trades at a large discount to the broader market on a price-to-earnings basis. This suggests some of investors’ lingering concerns may already be priced in. In fact, the discount to the broader market has increased over recent years, despite the fact that earnings continue to grind higher.

We therefore like the global banking sector as part of our wider message to add to global equities. Investors should seek approaches that are diversified across regions and geographies and consider global banks exposure as part of a wider equity and global asset allocation. Structured strategies, including those with capital preservation features, may be one tool for investors that seek exposure to global banks but are concerned about further potential falls or who seek to acquire stocks at potentially lower prices than today’s.

Investors must understand the risks associated with structured strategies, which include liquidity risk, issuer risk (the possibility that the bond issuer defaults) and that the pricing of these structured strategies depends on interest rates, implied volatility, and dividend expectations, all of which can fluctuate.