Market Cap to Book Correlates to ROE less COE | IDCFP

Large Cap Bank Stocks Continue to Price Equity Market Capital to Book Value Compared to Return on Equity (ROE) less IDC’s Cost of Equity Capital on a Straight Line (See Chart)

Banks as custodians for large portfolios, such as Bank of New York Mellon Corp (BK) and State Street Corp (STT) sell at a discount to the valuation line (see chart). Custodial banks tend to increase in profitability as interest rates rise due to their asset lending activities. Large real estate lenders with high real estate delinquency (WFC) also sell at a discount.