Seeking Alpha
Long/short equity, contrarian, CFA, macro
Profile| Send Message|
( followers)

This is my third North American and European Bank Rankings. The May and September 2009 posts can be seen here.

I have now added Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and HSBC (HBC) to the roster which now total 27 banks. All data is converted in U.S. dollars based on the February 17 exchange rates. To facilitate reading the charts, U.S. banks are in blue, Canadian banks in red and European banks in yellow.


Total market caps, excluding the 3 newly added banks, have declined 1.8% in USD since September 4, 2009. In local currencies, U.S. banks market caps gained 4.6%, Canadian banks gained 5.9% while European banks lost 12.2%.

Dilution was extraordinary for U.S. bank shareholders in the last 6 months as shares outstanding jumped 54% for U.S. banks surveyed (ex GS and MS). The banks mainly hit were Citigroup (NYSE:C) (+150%), Fifth Third (NASDAQ:FITB) (+38%) and Wells Fargo (NYSE:WFC) (+ 9%). Dilution was negligible in Europe (2.2%) and in Canada (0.6%).


However, the true measure of shareholder dilution is against the May 2009 figures. In 10 months, shares outstanding jumped 116% in the U.S. universe Citigroup shares outstanding went from 5.4 billion to 28.4 billion!) , 19% in Europe and a mere 1% in Canada.

As a result, share prices of the U.S. universe were up only 3.8% on average in the 10 months since May 2009, better than the 2.2% average loss in the European universe but much less than 21% gain in the shares of the more conservatively run Canadian banks.

Returns on equity

Canadian banks continue to dominate the ROE rankings with ROEs on 2010 consensus estimates ranging from 11.6% to 21%. U.S. banks’ ROEs have improved but remain below average as they dominate the tail end of the ranking.


Price to book values

Price/Book Values average 1.2x compared with 1.3x in September and 1.1x in May 2009. All six Canadian banks trade above 1.5x BV with an average of 2.0x. Only 4 of the 11 U.S. banks in the universe trade above book value while half of the 10 European banks surveyed do.

image Price to tangible book values

Price/Tangible BV average 1.75x, is down from 1.9x in September and 1.79x in May. There are 5 banks trading below tangible book, down from 8 in May 2009. Barclays (NYSE:BCS), Fifth Third and BNP (OTCQX:BNPQY) have left the doghouse.

image The price of growth

Price to book value ratios are not very meaningful valuation tools unless considered along with returns on BV, or ROEs. How much are investors paying for growth?

The state of panic that existed early last year has dissipated and the market has become more rational in evaluating bank stocks. Dispersion along the regression line has narrowed considerably.

  • All Canadian banks are now trading at premiums vs 3 in May and 4 in September. Bank of Nova Scotia (NYSE:BNS), Canadian Imperial Bank of Commerce (NYSE:CM) and Royal Bank of Canada (NYSE:RY) look relatively expensive on that measure.

  • All European banks trade below the regression line similar to last September. Obviously, investors are wary of estimates in Europe.

  • U.S. bank stocks trade fairly narrowly around the mean. Remaining outliers are KeyCorp (NYSE:KEY), FITB and US Bancorp (NYSE:USB) on the high side while MS and GS appear relatively cheap on that measure.


For comparison, I reproduce the May and September snapshots.

September 2009


May 2009




Disclosure: Long Royal Bank of Canada (RY), long Toronto Dominion (NYSE:TD), long Bank of Montreal (NYSE:BMO), long CM.