Prices are as of March 9, 2012.
North American banks market caps surged 18.5% since the beginning of 2012 with U.S. banks gaining a spectacular 24% while Canadian banks gained only 6.9%.
BAC's 45% stock price advance combined with a 4.5% increase in shares o/s to give the bank a 51% jump in market cap in 9 weeks!
Meanwhile, collective book values of U.S. banks rose only 3.3%. BAC's book value per share declined 3.4% during the period. The 6 Canadian banks are trading at an average P/BV of 2.0x (1.8x last December) compared with 0.9x (0.8x) for the 11 U.S. banks. Four U.S. banks trade at less than 50% of their book value. Only BAC now trades below 0.5x BV.
The Canadian banks are selling at 2.6x tangible BV (2.3x) while the U.S. banks are selling at 1.2x TBV (1.1x). In effect, the TBV of Canadian banks represents 77% of their BV compared with 72% for the U.S. banks.
All 6 Canadian banks earn a ROE (2012e) of more than 15% with an average of 18.5%,up from (18.0% in December). The U.S. banks' average ROE is 9.7%, up from 8.9%.
The price of growth:
Canadian banks' P/BV is 2.2x that of the U.S. banks but their average ROE is 1.9x that of the U.S. banks. Canadian banks' valuation is thus not much out of line when ROE is considered. Alternatively, U.S. banks are not all that cheap when their profitability is considered.
Note the two big outliers STI and CM.
For Canadian banks, investors are paying 0.11 units of BV for each 1% of ROE. For the U.S. banks, that ratio is 0.09, a 14% discount (16% last December). In March 2010, the ratios were 0.11 and 0.14 respectively, the U.S. banks then trading at a 27%premium. In March 2010, U.S. banks' average estimated ROE was 4.9% for 2010 while Canadian banks' estimated average ROE was 17.1%. U.S. banks outlook for 2012 is for ROE averaging 9.7%, 52% that of Canadian banks.