Banks in some developed markets such as Europe and Japan face a quandary: While they’re essential to a healthy financial system, investors tend to see limited future upside in most bank stocks. Over the past two decades, the major banking indexes in these regions have traded more like power utilities—safe, predictable, generally lower return—than like technology firms or other growth industries. On average, investors view the banking industry there as constrained by regulation, capital intensity, and profit margin compression.

The picture is different in other regions, particularly India, Australia, and North America. There, investors tend to see more “white space” in future earnings potential (see Figure 1).

Figure 1

But averages don’t tell the full story. Even in low-growth markets, some banks have managed to overturn investors’ skepticism and pull ahead of the pack through focused strategies, cost discipline, and compelling equity stories. Clearly articulated ambition and credible delivery can still earn investor confidence and lead to higher valuations.

Valuations are not dominated by a bank’s business model. Any type of bank—from those relying on a full suite of services for balanced revenues, to those relying on two major services, to those that focus on just one service line—can have a wide range of total shareholder returns in all regions. Among 14 focused banks in the US and Canada, for instance, total shareholder returns over the previous five years vary from about negative 7% to about 26%. Breadth itself is irrelevant.

Instead, what sets individual banks apart involves deliberate choices about where to play and how to win. High valuations today reflect strategic clarity, first-rate capabilities where it matters, and consistent execution. Mediocre or poor performers often stretch themselves too thin, chasing scale without clear logic or clinging to legacy businesses that erode investor confidence.

Glacier Bank, a regional bank in US western mountain states, has long made careful decisions about where to play and how to win. It features a local-first model with more than 25% market share in seven cities, service rooted in personal relationships, and local decision making. This model has achieved sticky deposits, conservative lending, and low nonperforming loans. While not a technology leader, Glacier invests in practical, trust-reinforcing tools delivering utility over flash, such as financial literacy programs. The result is a resilient, future-ready business grounded in trust and operational rigor, with a 1.6 price-to-book (P/B) ratio from investors on just a 5.6% return on equity (ROE).

Strong financials plus a credible narrative

Digging deeper into the components of valuation, most analyses start with ROE as a key performance metric. But ROE tells only part of the valuation story. Bain & Company analysis shows that ROE explains just 43% to 49% of the variation in P/B ratios across banks in North America, Europe, and Asia-Pacific (see Figure 2).

Figure 2

Even after expanding the analysis to include other metrics such as balance sheet strength, earnings volatility, and medium-term growth, as much as 30% of the gap remains unexplained. That missing piece consists of the bank’s equity story. Investors reward banks that not only perform but also communicate a clear ambition, execute against it consistently, and credibly signal their future direction.

Consider two European banks with similar capital strength and profitability. One earns a valuation premium by focusing on a few well-understood, stable markets (Belgium and central Europe), scaling up with discipline, and investing heavily in digital technologies and process efficiency. As a result, it has realized better margins, a lower cost to serve, and enduring relevance. Its strategy and execution combine into a coherent narrative. Another bank, though financially comparable, spreads itself thin, operating across fragmented geographies and legacy-heavy business segments. Without a focused narrative or differentiated capabilities, this bank’s performance does not engender confidence among investors, and its P/B ratio is just over half that of the first bank.

Top-performing banks understand that ROE is necessary but not sufficient. What sets them apart is not just how much they earn but how clearly they demonstrate that they can sustain their margins and where they’re headed next.

Deliver today, disrupt tomorrow

In order to convince investors, an equity narrative must suit the individual bank’s circumstances. But a common theme we’ve observed among many leading banks is an approach that combines two lenses. The “today forward” lens focuses on optimizing current performance by reducing cost structures, enhancing customers’ experience whether in digital or human channels, and scaling up operations via cloud and automation technologies. At the same time, a “future back” lens prepares for a fundamentally different landscape shaped by AI-native ecosystems, decentralized platforms, a competitor set that includes more nonbank companies, and programmable money. Navigating that shift demands foresight and agility.

Morgan Stanley illustrates elements of this dual-lens approach. Building on its experience and premium brand as an investment bank, it has pivoted to a comprehensive wealth platform and migrated customers to wealth management offerings. This more capital-light business model has produced better and more consistent returns. Preparing for the future, Morgan Stanley was an early adopter of artificial intelligence with tools such as a knowledge assistant for financial advisers. It continues to add new AI tools to increase efficiency and productivity among employees. 

At the other end of the spectrum, banks burdened by fragmented technologies, scant digital capabilities, or high structural costs struggle to keep up. They’re priced for stagnation, as even solid financials cannot compensate for failing to adapt.

Earn that premium

To be sure, investors still value a strong P&L and balance sheet. But increasingly they also want to see a clear strategy and purpose, coherent execution, and a credible narrative explaining what the bank is doing today and where it’s headed tomorrow. That requires bank executives to rethink how they measure performance—beyond ROE—to include such metrics as share in high-priority markets and more amorphous yet critical characteristics such as mastery of disruptive trends.

As the ingredients of value evolve, leadership teams can improve investor perceptions by addressing a set of high-gain questions:

• Are we adequately redefining what accounts for value? ROE clearly matters, but investors also reward high-caliber execution, market relevance, and positioning for the future.
• How can we sharpen our capital allocation? Investors want to see a bank emphasize structurally advantaged profit pools, not legacy business lines or geographic inertia.
• Do we invest in systems that scale up well? As a bank builds capabilities in data, technology, talent, and customer experience, these should reinforce each other and compound over time.
• Do we truly live our equity story? The bank’s ambition should be tightly aligned with its delivery through a narrative grounded in facts and demonstrating continued progress.

In a sector often labeled as predictably low growth, almost like energy utilities, high-performing banks prove otherwise. Banks that make clear, disciplined choices about where to play in terms of geography, customer segment, and product suite—and then back those choices with strong execution on how to win—can earn their way to high valuations and a new era of relevance, resilience, and long-term growth.