Jefferies Names Bank of America Top Franchise Pick, Citing Long-Term Asset Repricing

Jefferies has named Bank of America (NYSE: BAC) its top franchise stock pick, citing a compelling long-term investment case despite an anticipated short-term slowdown in investment banking revenue. The firm's analysts believe the bank is in the early stages of a significant, multi-year repricing of its fixed-rate assets that will drive future profitability.

Acknowledging Near-Term Headwinds

Jefferies acknowledged that weakness in investment banking is prompting downward revisions to near-term earnings per share (EPS) estimates. Citing Dealogic data, the firm noted that industry-wide fees for the third quarter of 2026 are projected to fall by 40% year-over-year. However, Jefferies forecasts a more moderate decline of 21% for the period, anticipating a rebound in September.

The slowdown is primarily concentrated in M&A advisory (down 57% YoY) and debt capital markets and loan fees (down 46% YoY), while equity capital markets fees have risen 24% YoY. Jefferies analysts view this weakness as an issue of deal timing rather than a deterioration in the quality of Bank of America's franchise.

The Long-Term Repricing Opportunity

The core of Jefferies' bull thesis rests on the eventual repricing of Bank of America's substantial portfolio of low-yielding, fixed-rate assets. This process is heavily back-loaded, with 90% of the relevant assets scheduled to mature between 2027 and 2031.

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Key details of the portfolio include:

• Total Maturing Assets: Between $355 billion and $390 billion in fixed-rate assets are set to reprice by 2031.
• Low-Yielding Sources: These assets stem from three main pools: a $410 billion held-to-maturity (HTM) mortgage-backed securities portfolio yielding 1.9%, a $121 billion HTM Treasury portfolio yielding 1.4%, and a $226 billion residential mortgage portfolio yielding 3.5%.
• Potential Uplift: Redeploying the capital from these maturing assets is expected to generate a yield improvement of 150 to 200 basis points.

Financial Outlook and Valuation

This repricing is projected to support a mid-term compound annual growth rate (CAGR) of 5% to 7% in Net Interest Income (NII). Jefferies has set a Net Interest Margin (NIM) target of 2.30% to 2.40% for the bank, a notable increase from the 2.08% reported in the second quarter.

Reflecting the near-term fee pressure, Jefferies slightly lowered its 2026 and 2027 EPS forecasts to $4.65 and $5.30, respectively. The firm also initiated a 2028 EPS estimate of $5.90. Analysts argue that as the bank's profitability and franchise quality improve, its stock warrants a higher valuation, forecasting a core Return on Tangible Common Equity (ROTCE) of 17.4% in 2027.