tk77mann

Nobody Knows What Bank Stocks Are Really Worth

Great article and conclusion, but I think bank stocks are even more unpredictable than just their current earnings statements. Lots of banks (like NCC a year ago) said they were in great shape, their dividends were secure, they were buying back shares, etc. but the assets on their books turned out to be significantly toxic.

If we can not determine the quality of their balance sheets, we can not reasonably predict their earnings, and their cash flows are impossible to use for valuation, banks as an investment class are an unpredictable crap shoot.

New Accounting Practices Will Boost Bank Equity Values

While Mark to Market can be painful, think of how painful other more judgemental valuation methods are in the hands of bad and / or corrupt management. Enron managers would have loved to be able to set their own (wildly inflated) values on crooked assets. They might have avoided going to jail for even longer than they did.

The bottom line is companies have to minimize illiquid assets whose values are not easily judged.