Banks Made a Record $1.2 Trillion. So Why Does Wall Street Think They’re Doomed?
In 2024, the global banking sector achieved something unprecedented: it generated $1.2 trillion in profits, the highest total ever recorded for any industry. Return on Equity (ROE) hit a 20-year high. By all conventional measures, it was a banner year. Yet, beneath the surface of these record-breaking figures, capital markets are sending a clear message of deep scepticism.
This scepticism is starkly visible in a massive valuation gap. Today, the banking sector is valued nearly 70 percent lower than the average of all other industries. Investors believe the recent profit surge was driven by temporary tailwinds and is fundamentally unsustainable. They see an industry struggling to find a new business model for the leaner years ahead.
This profound disconnect between record performance and market pessimism signals that massive, underlying shifts are underway. A recent McKinsey report, the "Global Banking Annual Review 2025," digs into this paradox and uncovers several counterintuitive truths about the future of banking. This article distils the five most impactful takeaways that every business leader should understand.
Takeaway 1: Banks Are Drowning in Profits, But Investors Think It's a Mirage
The core paradox is striking. In 2024, banks reported a staggering $1.2 trillion in net income and achieved a 10.3% Return on Equity (ROE), the highest in two decades. These are figures that would typically spark celebration.However, investors see these results not as a sign of sustainable strength but as a temporary peak driven by a perfect storm of favourable conditions. The market’s 70% valuation gap reflects a deep-seated doubt that this performance can continue. The consensus is that the recent highs were "tailwind driven" by a confluence of temporary factors: a peak in the global wealth cycle, unusually strong revenue margins boosted by higher interest rates, and low risk costs—conditions that are already beginning to fade.
Without a fundamental change to their business model, banks' ROE is projected to decline to between 7.3 and 9.2 percent by 2030. This would push many banks below their cost of equity, meaning they would effectively be destroying value for shareholders, not creating it.
Takeaway 2: AI Isn't Just a Tool—It's a Threat to Banks' Easiest Profits
While banks are eyeing AI for its potential to create massive internal efficiencies—a potential 15-20% net decrease in the industry's aggregate cost base—the bigger, more disruptive story is how AI will empower consumers.The emergence of "Agentic AI" threatens to eliminate "customer inertia," the tendency for customers to stick with their current bank even when better offers exist. This inertia has long been the source of banks' most reliable profits. AI agents, however, could systematically dismantle this advantage by automatically moving a user's deposits into higher-yield accounts or optimizing credit card balances across different lenders to minimize interest payments. This threat is magnified by the fact that, as the next takeaway shows, traditional customer loyalty is already in a state of collapse.
The potential damage is significant. If banks fail to adapt to this new reality, global banking profit pools could decline by an estimated $170 billion, or 9 percent. This is enough to push many institutions below their cost of capital. The McKinsey report highlights the dual nature of AI's impact:
The magnitude of AI’s impact on banking will likely depend on two key factors: the extent to which banks can become fully agentic and radically lower the cost of operations, and the extent to which customers adopt AI to manage their financial affairs.
The outcome will create a sharp divide. AI pioneers who reinvent their models could see their ROTE (Return on Tangible Equity) increase by up to four percentage points. In contrast, "slow movers" will face a future of declining profits and fading relevance.
Takeaway 3: Customer Loyalty Is Nearly Extinct
The traditional, loyal banking relationship is collapsing. The days when a customer would open a checking account and then automatically turn to that same bank for a mortgage, credit card, and car loan are effectively over.The data is stark. In the United States, only 4 percent of new checking account applicants choose their existing bank without first exploring alternatives. This is a dramatic drop from 25 percent in 2018.
This means the "loyalty loop," where clients purchase new products from their current bank without shopping around, has been almost entirely replaced. Today's consumer journey is defined by an "initial consideration set" and a period of "active evaluation." In this new environment, primacy and brand loyalty can no longer be taken for granted. Banks must fight just to be considered an option.
Takeaway 4: The Winning Strategy Is No Longer 'Bigger Is Better'
The report's central strategic argument is that the future of banking will be defined by "precision, not heft." The old strategies that relied on achieving massive scale—such as large-scale M&A deals or broad, unfocused digitalization programs—are no longer sufficient to guarantee success.Instead, leading banks will use a "precision toolbox" to drive value. This new approach applies to four key dimensions:
Technology: Surgically investing in AI where it has a proven, high-impact return, rather than piling into them because of the fear of missing out.
The New Consumer: Moving beyond broad segmentation to individualization (a "customer segment of one").
Capital Efficiency: Shifting from sweeping reallocations to micro-level balance sheet discipline—product by product, client by client, down to individual risk-weighted assets—to free up trapped capital.
Targeted M&A: Pursuing deals that add reach in specific micromarkets or geographies, or that bring distinct capabilities in a specialized area, rather than pursuing scale for size’s sake.
This new paradigm fundamentally changes the competitive landscape, as summarized in the report:
Precision, not heft, is the great equalizer. In the age of AI, even smaller banks can capture disproportionate rewards by embedding precision into every dimension of strategy.
Takeaway 5: The AI Revolution Could Be Dramatically Faster Than the Digital One
One of the most surprising findings is the sheer speed of consumer AI adoption. According to McKinsey's 2025 global survey on gen AI usage, which polled more than 30,000 consumers in seven countries, 51% of consumers already use generative AI, and 23% are using it for financial tasks. This creates an immediate sense of urgency for banks. Consumers now expect their banks to provide these tools, and for customers who have already used AI to choose a new bank, nearly all (97%) say the availability of AI features will influence their future switching decisions.This rapid adoption suggests that the AI transformation in banking could happen much faster than the internet and mobile revolution. The report speculates it could "compress 20 years of change into just five to ten."
The implications of this acceleration are critical. During the shift to digital and mobile, slow movers often had enough time to build "good enough" capabilities and remain competitive. The AI shift, however, may create a much greater and more rapid divergence between winners and losers, leaving little room for laggards to catch up.
Conclusion
Despite posting the highest profits of any industry in history, the global banking sector is on the verge of a profound disruption. The temporary financial tailwinds are fading, revealing an industry being reshaped by the powerful forces of artificial intelligence and radically altered consumer behavior.The path forward is no longer about size or scale. The winners of the next decade will be the institutions that master a new playbook built on precision, intelligence, and a deep understanding of a world where consumers have more power than ever. This leaves a critical question for every banking customer and industry leader to ponder: As AI agents get smarter, will your bank be the one providing the agent that works for you, or will you use a third-party agent that works against your bank's profits?
