Citigroup vs. Bank of America: Which Stock Has More Upside Potential?

A recent analysis compares Bank of America (BAC) and Citigroup (C), noting both benefit from higher-for-longer interest rates. BAC is pursuing expansion and tech investments, expecting a 6-7% NII increase in 2025, but faces rising expenses; conversely, Citigroup is streamlining operations, projecting a 2-3% NII increase and reduced expenses, with earnings estimates revised upward. Citigroup appears to be a more compelling investment opportunity due to its focus on cost reduction, cheaper valuation, and better stock performance.

Analysis

Bank of America (BAC) and Citigroup (C) are navigating similar macroeconomic conditions, notably the Federal Reserve's cautious stance on rate cuts, which is anticipated to keep interest rates higher for longer, potentially benefiting both institutions. Bank of America is pursuing a strategy of aggressive branch expansion, with plans to open over 150 new financial centers by 2027, and investing in technology like Zelle and Erica to drive net interest income (NII) growth, projected at 6-7% for 2025; however, this expansion is expected to increase non-interest expenses by 2-3% in 2025. In contrast, Citigroup is focused on streamlining operations, including exiting consumer banking in 14 international markets (nine completed, with Poland's consumer banking business sale recently agreed) and eliminating 20,000 jobs by 2025. This restructuring aims to reduce expenses, with 2025 expenses projected below $53.4 billion (from $53.9 billion in 2024), and free up capital for higher-return segments, while Citigroup projects NII (ex-Markets) to rise 2-3% in 2025. Over the past year, Citigroup's shares have risen 25.5% versus Bank of America's 16.9%, both underperforming the industry's 31.1% growth. Citigroup trades at a forward P/E of 9.28X, while Bank of America is at 11.27X; both are below the industry average of 13.64X, with Citigroup being comparatively cheaper. Citigroup offers a higher dividend yield of 2.99% following a 6% dividend hike to 56 cents per share, compared to Bank of America's 2.36% yield after an 8% hike to 26 cents per share. Both maintain substantial share repurchase programs, with BAC having $14.4 billion and C $18 billion available for buybacks as of March 31, 2025, under programs authorized in July 2024 and January 2025 respectively. Analyst estimates project stronger earnings growth for Citigroup (23% in 2025, 25.9% in 2026) compared to Bank of America (12.2% in 2025, 15.3% in 2026), and Citigroup's earnings estimates for 2025 and 2026 have seen upward revisions, whereas Bank of America's 2026 estimates have moved lower, leading the article to conclude Citigroup presents a more compelling investment opportunity due to its cost-reduction focus, favorable analyst sentiment, lower valuation, and superior recent stock performance.

Key Decisions for Investors

• Investors may find Citigroup's current trajectory more attractive due to its disciplined restructuring, projected expense reductions leading to significant earnings growth (23% in 2025, 25.9% in 2026), positive analyst revisions, and a comparatively lower valuation.
• Bank of America's strategy of aggressive expansion and technology investment offers potential for long-term NII growth (projected 6-7% in 2025), but investors should weigh this against expected near-term increases in non-interest expenses (2-3% in 2025) and downward revisions in 2026 earnings estimates.
• Closely monitor Citigroup's progress in its operational streamlining and capital redeployment effectiveness, while for Bank of America, track the successful conversion of its expansion initiatives into sustained profitability and management of associated costs.