VALUE: After Hours (S08 E08): Why Big Banks Are Expensive and Small Banks Are Cheap

During their recent episode, Taylor, Carlisle, and Derek Pilecki discussed Why Big Banks Are Expensive and Small Banks Are Cheap. Here’s an excerpt from the episode:

[Derek] I’m short a bunch of, the valuation is, is high, right. Yeah. So, so I mean, you know, JP Morgan’s a great business 15 times in three times tangible value is not a good value.

Right. And so I think, you know, we’re at a weird thing where the small banks are trading at eight times earnings and the large banks are at 12 times earnings. And so that it’s nor, that’s usually backwards, like because they have M&A premium in the small banks and they can grow faster.

And so I think part of the reason why the large banks are trading at high multiples is they’ve had some improvement in their capital rules. And so there’s been expectation of, of more buybacks and, you know, they’re also been deemed too big to fail. So like they’re, they’re very stable businesses.

They have very low loan deposit ratios. And so I think, but I also think we’ve had this move from active management to passive management and, you know, we, we talk about the market being expensive, right. And because of that, and every, all the flows into the spy or going into the large cap companies, if you look just at financial sector, the highest valuations, the largest cap financials, you know, Berkshire, JP Morgan, Visa, MasterCard, Progressive, American Express, Morgan Stanley, those are the most expensive financials.

And they also happen to be the biggest. So, I mean, I’ve owned JP Morgan in the past when it was one time as tangible book value and, you know, Jamie Dimon’s the best banker in the world. Right.

So there’s no reason not to own it at the right price, but today is not the right price. I mean, Jamie sold a lot of stock himself, personally, they complain having to buy back their stock with their excess capital. Like they’re telling you their stock is not attractive.

Right. So, so, you know, we’re just at a weird time where the largest cap companies are the most expensive.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

VALUE: After Hours (S08 E08): Why Big Banks Are Expensive and Small Banks Are Cheap

Read next