Comments on: Why Are Bank P/Es So Low? http://ContrarianEdge.com/2006/02/16/why-are-bank-pes-so-low/ Vitaliy Katsenelson blog on the economy, stock market, and stocks. Applying Active Value Investing approach. Wed, 02 May 2012 15:01:00 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Mike http://ContrarianEdge.com/2006/02/16/why-are-bank-pes-so-low/comment-page-1/#comment-4606 Mike Sat, 24 Mar 2007 07:54:28 +0000 http://rangebound.com/?p=76#comment-4606 Vitaliy, I find much merit in your hypothesis, more so than those you mentioned. I believe it's a little more complicated (isn't it always?). Let me explain. If we look at the macro landscape whereby we just witnessed the doubling of our debt in the past seven years, could it be possible that the banks are now looked at differently? This would be in contrast to how they were viewed in the secular bull from 1982-2000 (for the market when analyzed from a valuation standpoint). It is quite possible that throughout this period, and its corresponding cyclicality, more emphasis would have been placed on their "limited growth". As the secular bull moves on in duration less emphasis would be placed on this "limited growth' idea and more on your thoughts due the banks seeking out "the more risky" in order to grow (this could be aquisitions also). On the other hand, the rate of debt growth of recent times certainly favors your opinion on a probabilistic standpoint if you buy the idea that we certainly need a deep contraction (last in early 90's). I look at firms such as CFC and WM, alongside the institutions of course, and see that capitalization-wise they did not participate in this latest "boom". Can it be that the smart actors know the risks now are too great and have removed themselves? Given the stocks were already in an over-owned nature prior to the "printing", some of the larger banks did not move. This lends support to your hypothesis currently. In conclusion, I believe that the perception of why they trade at a low P/E ratio, at any given time, changed over the period. As an aside, I am the MBA student who contacted you awhile back for authors, book recommendations, and what students of your courses are lacking. With your help, that lead to roughly about 50 books now. Thank you for taking the time... Mike Vitaliy,

I find much merit in your hypothesis, more so than those you mentioned. I believe it’s a little more complicated (isn’t it always?). Let me explain.

If we look at the macro landscape whereby we just witnessed the doubling of our debt in the past seven years, could it be possible that the banks are now looked at differently? This would be in contrast to how they were viewed in the secular bull from 1982-2000 (for the market when analyzed from a valuation standpoint). It is quite possible that throughout this period, and its corresponding cyclicality, more emphasis would have been placed on their “limited growth”. As the secular bull moves on in duration less emphasis would be placed on this “limited growth’ idea and more on your thoughts due the banks seeking out “the more risky” in order to grow (this could be aquisitions also). On the other hand, the rate of debt growth of recent times certainly favors your opinion on a probabilistic standpoint if you buy the idea that we certainly need a deep contraction (last in early 90′s).

I look at firms such as CFC and WM, alongside the institutions of course, and see that capitalization-wise they did not participate in this latest “boom”. Can it be that the smart actors know the risks now are too great and have removed themselves? Given the stocks were already in an over-owned nature prior to the “printing”, some of the larger banks did not move. This lends support to your hypothesis currently. In conclusion, I believe that the perception of why they trade at a low P/E ratio, at any given time, changed over the period.

As an aside, I am the MBA student who contacted you awhile back for authors, book recommendations, and what students of your courses are lacking. With your help, that lead to roughly about 50 books now. Thank you for taking the time…

Mike

]]> By: Alex Garcia http://ContrarianEdge.com/2006/02/16/why-are-bank-pes-so-low/comment-page-1/#comment-613 Alex Garcia Tue, 16 Jan 2007 03:40:53 +0000 http://rangebound.com/?p=76#comment-613 I also agree with the slow growth theory. There is no true method in valueing banks but the best indicator can be their return on equity. If memory serves me correct, banks like Citigroup, Bank of America and Wells Fargo usually sport the highest percentage wise. By the way, nice blog. I also agree with the slow growth theory. There is no true method in valueing banks but the best indicator can be their return on equity. If memory serves me correct, banks like Citigroup, Bank of America and Wells Fargo usually sport the highest percentage wise. By the way, nice blog.

]]> By: Alex Khenkin http://ContrarianEdge.com/2006/02/16/why-are-bank-pes-so-low/comment-page-1/#comment-11 Alex Khenkin Thu, 23 Feb 2006 00:40:00 +0000 http://rangebound.com/?p=76#comment-11 Vitaliy, is there any "simple" metric or a ratio that can give a starting point for valuing a bank, in your opinion? I've stayed away from banks because I don't even know where to start - neither P/E, nor Price/Book, nor Price/Sales have any meaning for a bank, and their balance sheets might as well be sold from tabloid stands at supermarkets next to World News. Vitaliy, is there any “simple” metric or a ratio that can give a starting point for valuing a bank, in your opinion? I’ve stayed away from banks because I don’t even know where to start – neither P/E, nor Price/Book, nor Price/Sales have any meaning for a bank, and their balance sheets might as well be sold from tabloid stands at supermarkets next to World News.

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