Banks suffered under the Fed policy of ultra-low rates and anemic economic growth in recent years. Return on equity for banks averaged 9.2% over the past five years, compared to the five years ending 2006 of 14.6%. The net interest margin of 3.12% over the recent five year period compares…
The S&P 500 stock market average index has had a remarkable history of tracking the recovery in the return on equity (ROE) above the cost of equity (COE) for its average of 500 component companies (see Chart I). Each time ROE has risen above COE, a bull market occurred as…
In a previous article, the major bull market in bank stocks from the first quarter of 1995 to year-end 2006 of 300% was driven by the widening spread between return on equity (ROE*) and the cost of equity (COE*), as defined by IDC Financial Publishing, Inc. (IDC). In the article,…
The major bull market in bank stocks (KBW Index) from the 1st quarter of 1995 to year end 2006 of 300% was driven by the widening spread between bank return on equity (ROE*) and the cost of equity (COE**), as defined by IDC Financial Publishing, Inc. (IDC). During the 12…
The Benefits of Living on the Positive Valuation Slope The mission of a bank is to operate a safe and sound financial institution while creating shareholder value. The value of a bank, defined by the ratio of market value to common equity, most often is directly related to the return on…
