At the start of trade today money center bank JPMorgan Chase (NYSE:JPM) was trading at $36.80. That's a PE of 8.19, a price to book value of about .76.
By contrast, little Prosperity Bancshares of Texas (NYSE:PB), which just moved to the NYSE in February, was trading at about $44.51. That's a PE of 14.53, and a price to book value of 1.25. Stockpickr says that, on a technical basis, it's poised for even further gains.
What gives? Should David Zalman, a former childrens' clothing manufacturer from El Campo, Texas, about mid-way between Victoria and Houston, be on the cover of Forbes rather than Jamie Dimon of JPMorgan Chase?
Or is this just a fad?
This much is certain. Prosperity Bancshares is no casino. Thanks to Texas' strict homestead laws, which protect homes and certain possessions in personal bankruptcy, the bank never got into the mortgage weeds.
According to its 10-Q, PB's asset base has advanced a little over 10% in the last year, despite a squeeze on net interest margins from 3.97% to 3.60%, which the company describes. The company was begun in 1983 with a small bank in Edna. It bought two banks during the most recent quarter and seems hungry for more.
I inherited some shares in the bank from a relative, whose hometown bank in Flatonia, Texas, was one of Prosperity's earlier meals. I later bought some for my own account, for sentimental reasons more than anything else. The bank's growth is fueled in part by the Eagle Ford shale boom - the lands being drilled fall into Prosperity's general territory. Oil under the land means your loans are likely to get paid.
JPMorgan Chase, of course, had that little $2 billion accident recently. But on the whole the company remains a gusher of cash, earning twice Prosperity's whole asset base in a single quarter. The loss of $2 billion looks paltry on an asset base of $2.1 trillion.
Even if you assume a Glass Steagall split in the bank, between commercial and investment arms, the commercial arm alone should be valued at more than PB - the credit card business alone is huge.
As a trade, JPM seems an obvious play over PB. Its valuation is absurdly low next to its asset value. We're past the worst of the mortgage crisis, the banking part of the business should perform well, and if the traders can just break even for a while all will be well.
But, still, I'd love to see Zalman on the cover of Forbes. Just once.
Disclosure: I am long PB.