Financial institutions had a banner year in 2025, with total shareholder return (TSR) exceeding that of all other industries, including information technology. The primary driver of this performance was a genuine and durable increase in profitability. Return on equity has risen sustainably above cost of capital across most markets, and price-to-book ratios have improved accordingly. Importantly, however, price-to-earnings multiples have remained largely unchanged. Investors are pricing financial institution earnings no differently than they did before, meaning that sustaining strong TSR will require growth, not merely the defense of existing multiples. With their equity, on average, now trading above book value, financial institutions have earned the right to act boldly from a position of strength. But only those with scalable operating models and sustainable competitive advantages can translate growth into long-term value creation. For most financial institutions, this implies the need for a ground-up redesign.
This report examines how financial institutions can shift into growth gear and position themselves for continuing strong performance. Here is a summary of the main points:
- Use AI to reset productivity structurally, not incrementally. Most recent profitability gains reflect income uplift combined with cost containment—positive jaws—rather than structural transformation of the operating model to achieve a step change in productivity and enable scalable growth. Although the overall opex-to-assets ratio has not improved materially, and headcount across the industry has increased, new players are demonstrating that rapid, scalable growth is possible. Winning financial institutions will follow their lead and focus on structural operating model redesign rather than on incremental cost cutting—shifting technology spending from run-the-bank to change-the-bank, simplifying product and tech architecture, and embedding AI in day-to-day work with clear economic ownership. These investments may have longer payback periods, but they will deliver structural productivity gains that no short-term cost exercise can match.
- Rebalance capital toward tech-led growth. After years of industry emphasis on cost, growth is reemerging as the more powerful value lever for institutions trading above book. Sustaining recent value creation will require a renewed focus on growth and corresponding shifts in capital allocation. Leaders in digital innovation have demonstrated growth through market share gains. AI is playing a role here by expanding the addressable market—lowering breakeven thresholds to make products such as small-ticket mass-affluent wealth solutions and midmarket treasury services economically viable for the first time.
- Plot an active portfolio strategy. For the first time in more than a decade, valuations, capital headroom, and investor expectations for financial institutions align in favor of active portfolio reshaping. We see three routes to value-accretive growth through M&A: increasing scale in the core; expanding into attractive pockets of value; and divesting to optimize the portfolio. All three actions require disciplined integration execution.
- Position early where disruptive trends intersect. AI, nonbank financial institutions, and digital assets continue to disrupt the financial institution landscape, but their most significant impact has yet to emerge. As these forces converge, they will amplify their effects on competitive positioning, revenue models, and operating models, generating greater disruption than any single trend in isolation would. Recent stress in private credit markets suggests that these effects can materialize rapidly and that institutions without a clear view of their exposure may find themselves reacting rather than leading. Leaders should prioritize building the organizational agility necessary to respond quickly to the scenarios that emerge. Similarly, institutions that position themselves at the convergence of these trends—rather than simply defending against them—stand to capture the resulting value.
- Concentrate CEO-owned AI bets and get execution right. Winning institutions concentrate investment on a portfolio of six to eight high-impact bets chosen following a disciplined assessment of value impact, competitive advantage, reusability, and time horizon. Execution requires building five foundational enablers—technology, data, risk and compliance, operating model, and talent—at scale, not piecemeal. CEOs must personally own this transformation, not merely sponsor it. They should embed AI at the core of the institution’s strategic priorities, apply the same rigor in measuring impact as they do in assessing other investments, and track delivery through improved unit economics rather than use-case counts. The contours of the intelligent organization of the future are evident already in AI’s disruption of the software development process. Most tasks are agent-led and only supervised by humans. The next step is a disruption of business processes in the same manner, with a massive reallocation of talent.
For financial institution leaders, the path forward begins with addressing five strategic questions:
- Where can AI enable a step change in productivity for your business?
- Where will you achieve outsized growth? How can AI enable this?
- Is your M&A thesis clear?
- Are your teams taking positions and making bets on potential disruptions such as digital assets and nonbank financial institutions?
- How will your organization move from AI-enabled to AI-first?
The authors would like to thank the following colleagues for their valuable contributions to this report: Amrit Shahani, Ankit Gupta, Armin Saletovic, Cristina Espinosa, Dimitrios Stefanou, Fatih Selcuk, Florian Dahl, Jose Bonilla, Kathrin Stenner, Laura Eggerschwiler, Maximilian Schoen, Polly Ho, Rajat Sharma, Trina Foo, Yirou Han.
