Capital and Power Short: Why CFRA’s Ken Leon Says the Big Banks Are Poised to Shine

As bank earnings season approaches, Capital and Power—the flagship podcast from AInvest—delivers a timely deep dive with one of Wall Street’s most respected bank analysts, Ken Leon , Global Director of Research at CFRA. In conversation with host Adam Shapiro, Leon outlines what investors should watch from the nation’s largest financial institutions—from Citigroup's transformation to Morgan Stanley’s capital flexibility, and from Bank of America’s consumer health to the broader outlook for credit, regulation, and lending in a cooling-rate environment.

For those following the financial sector, this interview is essential listening. Leon’s perspective carries weight: he’s covered banks for decades, guided institutional clients through multiple credit cycles, and is known for his data-driven, unemotional read on the U.S. financial system. His track record in spotting inflection points—such as the 2023 recovery in trading revenue and the mid-2024 turn in capital markets activity—has earned him credibility as a bellwether voice heading into earnings season. Simply put, when Ken Leon talks about the banks, the Street listens.

The Citigroup Story: From Rebuild to Reliable Performer Leon opens by highlighting how Citigroup’s long restructuring journey has finally begun paying off. With the sale of its Banamex consumer unit in Mexico, Citi has streamlined its international footprint and simplified its reporting structure—creating what Leon calls “a more reliable performer than we’ve seen in years.” He expects Citi to reaffirm strong full-year revenue guidance above $84 billion, citing tailwinds from a resilient U.S. economy and a revival in capital markets activity.

The key metric to watch? Non-interest income, particularly from card revenues, treasury services, and corporate banking. Citi’s credit card operations remain among the top three in the country, and with consumers still spending, Leon expects that segment to post solid growth despite an anticipated decline in rates. He warns that analysts too often underestimate loan volume offsets when forecasting lower net interest income, arguing that “volume matters as much as spread.”

Morgan Stanley: Capital Return and Consistency Lead the Way Turning to Morgan Stanley, Leon calls its recent success in appealing to the Federal Reserve to lower its stress capital buffer a “critical milestone” that opens the door for greater capital returns through buybacks and dividends. While he doesn’t expect an aggressive shift in the near term, Leon believes the firm’s strong capital position and minimal exposure to traditional loan risk keep it among the most attractive plays in the sector.

He notes that across the past six to eight quarters, Morgan Stanley has been one of the top two banks for revenue and earnings beats, driven by a resilient wealth management business and a rebound in investment banking. In Leon’s view, Morgan Stanley and Goldman Sachs remain best positioned to outperform as dealmaking and IPOs rebound.

Investment Banking and IPOs: The Return of the Deal Machine Leon sees unmistakable signs of life in the capital markets, noting that IPO and M&A pipelines have steadily improved since June, led by tech and AI-related deals. He expects further normalization in underwriting volumes heading into 2025 as rate stability improves risk appetite. Interestingly, Leon also flags the $2 trillion in private-equity-owned equity sitting on balance sheets as potential IPO candidates—suggesting the deal recovery could last well into next year as private equity firms seek exits.

Bank of America: Strong Consumer, Healthy Credit Quality On Bank of America, Leon pushes back against recent concerns about consumer weakness. Despite some signals of spending fatigue, he emphasizes that delinquencies and loan-loss provisions remain within normalized ranges. The bank’s focus on higher-FICO-score customers provides insulation against credit deterioration, setting it apart from pure-play consumer lenders.

Leon does not foresee any major political risk for Bank of America, calling talk of regulatory backlash “noise” amid what he views as a constructive environment for credit expansion. He expects both the Fed and Treasury to promote “regulatory reform that encourages lending rather than contraction.”

The Big Picture: U.S. Banks Are Built to Withstand Volatility Perhaps Leon’s most striking takeaway is his conviction in the resilience of U.S. banks. “We have the greatest banks in the world,” he tells Shapiro. “They’re benefiting from domestic growth and gaining wallet share abroad.” While he acknowledges that rates will compress net interest income in time, Leon argues that diversified non-interest income, improved capital ratios, and renewed capital markets activity give the group room to thrive.

Among the names he discusses, Goldman Sachs stands out as CFRA’s top pick, with a strong buy rating and a record of outperforming peers for six consecutive quarters. The laggard, Leon notes candidly, remains Bank of America, which CFRA currently rates a hold.

Why You Should Listen The upcoming earnings season could redefine sentiment toward financials—and Leon’s commentary cuts through the noise. From Citi’s transformation to Morgan Stanley’s buyback potential and the broader health of the consumer, his analysis offers investors both the metrics to watch and the context to interpret them.

For investors, advisors, and anyone tracking the health of the economy, this Capital and Power Short delivers clarity and conviction. As Leon puts it, confidence in the U.S. economy and the strength of its banks isn’t blind optimism—it’s data-backed reality.