Quick question about FIG valuation (post your thoughts)
Is (Market Cap/Total Deposits) a relevant multiple to value a bank? Assuming the bank simply receives deposits and gives out loans.
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I dont think so because different banks will have different net-income margins (how much they earn off their deposits).
I'm asking because that multiple is available on the Bloomberg Terminal. From what I understand and read on WSO, (Price/Book Value) and (Price/Tangible Book Value) are widely used. However, forecasting the entire balance sheet can be difficult so just using deposits may be easier...
I see your point though.
Interesting. People must use it then.
Been a long time since my FIG days. Agree with the other posts here, kind of a weird multiple. I would think you would need to factor in NIM somehow to be apples to apples on cost of deposits and interest income.
At the end of the day it all comes down to P/E. Even P/B is a slippery terrible measure that is almost meaningless. As all past present and future FIG bankers can attest to, there is a great chart that makes it into every Bank pitch/slide deck that has P/B on one axis and ROE on the other axis. And each bank is a data point on that chart. And then there is a regression line with a slope cutting through all the data points. That line’s slope is the focus of the chart and represents P/E ( P/B divided by ROE = P/E). The banks with higher ROE trade at higher P/Bs and vice versa. So as you can see, what it comes down to and what really matters is P/E.
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