Prices are as of May 18, 2011.
Citigroup moved up to no. 3 in market cap. from no.4. TD Bank moved up to #6 from #7, ahead of GS. National Bank moved up to #15 from #16.
Canadian banks’ aggregate market cap is US$310B, 40% of the 11 US banks ($773B) sampled here. That ratio was 36% in mid-February and 32% in March 2010. In effect, the 6 Canadian banks have seen their market cap grow from US$258B in March 2010 to US$310B currently, a 20% gain. Meanwhile, the 11 US banks’ market cap has declined 3%.
The 6 Canadian banks are trading at an average P/BV of 2.2x (2.1x in March 2010) vs 1.0x (1.1x) for the US banks. Seven of the 11 US banks listed here trade at or below book.
The Canadian banks are selling at 2.8x tangible BV (2.7x in March 2010) while the US banks are selling at 1.4x TBV (1.6x). In effect, the TBV of Canadian banks represents 79% of their BV compared with 71% for the US banks. Three US banks are selling below TBV, including the huge C and BAC. All Canadian banks are over 2x TBV! In fact, 5 of the 6 Canadian banks are at more than 2.5x TBV.
All 6 Canadian banks earn a ROE (2011e) of more than 15% with an average of 18.2% (17.1% for 2010e in March 2010). The US banks’ average ROE is 10.8%, up considerably from 4.9% in March 2010.
The price of growth:
The Canadian banks are selling at 2.2x BV for a ROE of 18.2%. Investors are thus paying 0.12 units of BV for each 1% of ROE. For the US stocks, that ratio is 0.09. In March 2010, the ratios were 0.11 and 0.14 respectively, indicating that the US bank stocks have become much cheaper than Canadian banks during the last 14 months.
Among US stocks, KEY and BBT are selling at “Canadian prices” while earning “US ROEs”. Also interesting is the fact that investors are valuing GS’ and BAC’s ROEs similarly and at the very bottom of the range.
Note: Canadian banks will be reporting their Q2 ended Apr. 30 within 3 weeks. I will update the charts right after.