What Are The Current Price-to-Book Ratios For The Largest U.S. Banks?

-13.52%
Downside
57.77
Market
49.96
Trefis
WFC: Wells Fargo logo
WFC
Wells Fargo

U.S. Bancorp’s shares currently trade at a P/B ratio of almost 180%, followed by banking giant Wells Fargo at ~140%. On the other hand, shares of Citigroup and Bank of America continue to be valued well below their book value, with a P/B ratio of around 65%.

AB_QA_PB_160829

The P/B ratio compares the share price with the bank’s underlying financial condition (captured by the book value per share), and can indicate whether the shares are being priced too cautiously or too aggressively. Marked differences between the price of a company’s shares compared to its book value are often a sign of under- or over-valuation. At times, however, very low P/B ratios may actually be because of problems with the company’s business model, whereas high P/B ratios could be due to optimism about the future potential of a company’s business model.

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Notably, the shares of U.S. Bancorp and Wells Fargo have traded at a sizable premium to book value since the economic downturn of 2008 – indicating that investors believe in the business models and growth opportunities for these banks in the long run. In sharp contrast, Citigroup and Bank of America have traded at a marked discount to book value as investors remain skeptical about the quality of assets on their balance sheets – especially their legacy mortgage portfolio.

AB_QA_PBChange_16Q2

The table above summarizes the change in P/B ratio for these banks over the last five quarters, with the color gradation along a row added to help understand the overall trend for a particular bank. There has been a significant reduction in the P/B ratio figure for each bank over the last two quarters. This was primarily because bank shares lost a chunk of their value over this period, as lukewarm global economic conditions pointed to additional delays in further interest rate hikes by the Fed. The situation was aggravated towards the end of Q2 2016 as an unexpected Brexit vote triggered a sell-off among bank shares.

A comparison of the two tables presented above makes it clear that share prices have recovered to a large extent over the months of July and August.

See Trefis analysis for U.S. Bancorp | Wells Fargo | Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

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