For US banks, 2014 has been another year of adversity: more multi-billion-dollar fines, failed stress tests, political haranguing, tepid trading and slow loan growth. But investors appear to have their eyes on 2015 and beyond - overlooking the recent storm clouds in favour of the glimmers of sunshine pushing through.

Shares in each of the big six US banks have risen a third year, with Morgan Stanley’s up 22pc and Wells Fargo’s 20pc. On average, these US bank shares now trade at a 20pc premium to European competitors.

In 2015, however, four factors will help determine whether this optimism has been overdone.

1.) Interest rates will rise and banks will enjoy a boost to revenues . . .

The extent of the re-rating of bank shares in the past couple of years only makes sense if the Federal Reserve is about to raise interest rates. That should give banks billions of dollars in extra revenue from fatter margins between the rates at which they borrow and lend.

. . . or they won’t rise, and the revenue boost won’t occur

A rate rise has been on the cards for years but expectations have been confounded. There is also growing concern that a rate rise could send the market into a tailspin. Just look at the ‘taper tantrum’ in 2013. Another threat is deposit flight. Fatter margins are predicated on banks failing to pass on higher rates to depositors. But banks including JPMorgan have warned that depositors might shop around in favour of better rates from outside the banking sector.

Fatter margins are predicated on banks failing to pass on higher rates to depositors. But banks including JPMorgan have warned that depositors might shop around in favour of better rates from outside the banking sector

2.) The disrupters have arrived . . .

Apple launched its smartphone digital payment system in October and analysts say huge volumes of payments are already being made by customers scanning thumbprints on an iPhone 6, rather than using payment cards. A report by ITG said Apple Pay already accounted for 1pc of digital payments. The threat from technology groups that US banks have long feared appears to have materialised. At the same time, Lending Club’s initial public offering and $8.5bn valuation demonstrate the threat that peer-to-peer lending platforms pose to the banks’ core business.

. . . but they are playing nicely (for now)

Bank executives travelled to California for the Apple Pay launch, and were willing to pay homage to chief executive Tim Cook because he is not cutting them out of the game: rather than inventing a new payments infrastructure, Apple Pay uses the existing one. It has asked banks to sacrifice transaction fees in return for higher volumes and lower fraud costs. Similarly, banks seem relaxed about peer-to-peer lending, happily referring potential borrowers who do not meet their lending criteria.

3.) The big fines have been paid . . .

It has been more costly than anyone anticipated but, finally, banks can claim to have put penalties for wrongdoing linked to the financial crisis behind them. The ‘peace dividend’ which Bank of America’s Brian Moynihan has long promised may now be in the banks’ grasp.

. . . but US authorities have upped the ante and foreigners might want to cash in, as well

Notable unpaid bills include likely penalties from the US Department of Justice over the manipulation of foreign exchange markets. Banks have paid their regulators, but the Justice Department has shown it is willing to demand many more billions than anyone else. And US bank executives are understandably nervous about the risk of retribution from foreign governments, who have seen their banks punished severely by US authorities.

4.) Regulations have been rolled back and the Republicans are coming . . .

Banks recently won two concessions from Congress and regulators: the loosening of restrictions on derivatives trading and a delay in the implementation of a part of the Volcker rule, which restricts investments in funds. With the Republicans taking control of the Senate, banks have more traditional allies and fewer politicians wanting to attack them for political gain.

. . . but the political climate is worse than ever

There are openly bank-sceptic Republicans wanting to impose more draconian controls on the industry. And the political dynamic going into presidential elections is hard to assess. On the Democratic side, Hillary Clinton is seen as closer to Wall Street than Barack Obama but she may be forced to lurch to the left if she faces a challenge from the banks’ most ardent opponent: Senator Elizabeth Warren. So far, investors evidently tend to the more optimistic viewpoints. What is troubling is that bank executives seem a little less sanguine.

tom.braithwaite@ft.com

Published in Dawn, Economic & Business, December 29th, 2014