Net interest margins for all US banks. Source: Bloomberg
Net interest margins for all US banks. Source: Bloomberg
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US stocks back up, but banks still underwater

There is no rational explanation for banks to be trading at the same P/E’s as they were before the crisis

April 11, 2017 2:30 AM (UTC+8)

The stock market crawled back into positive territory after lunch but banks remain below water for the day.

Bank analysts are born optimists (nobody but an optimist would become a bank analyst to begin with). But the numbers just don’t look good at all. Net Interest Margin for US banks remains close to all-time lows. Banks aren’t making it up on the volume, either.

As we noted earlier in the day, US banks’ rate of commercial and industrial lending growth is just above 3% year-on-year, the lowest level since 2009. Ten years ago, in April 2007, before the crash, banks were trading at 14.9 times earnings. Now they are trading at 14.6 times earnings. The difference is that C&I loan growth back then was running at nearly 20% a year, Net Interest Margin was at 3.4% compared to 3.0% today, and banks had a great deal more flexibility in levering their balance sheets. Why banks should trade at the same P/E’s as they did before the crisis escapes us.

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