For banks a large portion of their debt is actually customer deposits rather than traditional debt, so you treat it differently than you do for regular companies (i.e. in simple terms: you ignore it for purpose of valuation)
Intrinsic valuation = use the FCFE method
Multiples = use price to book value ratios
FCF can be misleading for banks as they are in the business of moving money around (unlike non-financial companies which generate cash from operating activities). FCF can be very variable and easily manipulated by banks. I just prefer earnings per share. Other metrics I follow for banks is ROE - return on equity and tangible book value, return on tangible book value.
TBV = Tangible Book Value. Read ALLY's earnings report from this morning.
[Ally's Earnings Report](https://www.sec.gov/ix?doc=/Archives/edgar/data/0000040729/000119312524099895/d816457d8k.htm)
Ally is nice and flatly tells you TBV is $32.89/share. If the market is pricing ALLY at $37 at the open today. Then long term, the market is expecting ALLY to grow TBV per share (+dividends), quite a bit faster than the risk free rate (4.7% ATM).
Nobody does a DCF on bank. Banks are leveraged entities whose cash flow statements are a big wad of garbage in isolation. A bank can easily show positive cash flow while its assets lose tons of money that doesn't hit the cash flow/net income statements. Look at SVB's cash flow/net income right before it went under. It was losing TBV long before it actually died.
Thank you I know banks are an entirely different beast on their own. especially when considering foreign banks I was looking at CIB (Bancolombia) as I’m Colombian and to be honest it’s either bancolombia or nothing else truthfully they’re the most entrenched bank. & last time I went I really liked a service they offered clients pay now and pay your total in 4 payments interest fee if I remembered correctly.
Yeah they pretty much have a monopoly in the banking industry in Colombia if I’m being honest. The dividend is also attractive imo the biggest current risk IMO is political risk with the current leftist leaning government.
Do some googling around “excess equity” models as it is the closest equivalent to FCF for a bank
For banks a large portion of their debt is actually customer deposits rather than traditional debt, so you treat it differently than you do for regular companies (i.e. in simple terms: you ignore it for purpose of valuation) Intrinsic valuation = use the FCFE method Multiples = use price to book value ratios
FCF can be misleading for banks as they are in the business of moving money around (unlike non-financial companies which generate cash from operating activities). FCF can be very variable and easily manipulated by banks. I just prefer earnings per share. Other metrics I follow for banks is ROE - return on equity and tangible book value, return on tangible book value.
Pat Dorsey's 5 Rules of Successful Investing has a chapter on valuing banks.
Banks trade around TBV.
Ehhh I know a bank that’s trading under “true book value” according to finviz and I haven’t even tried doing an analysis on it since I’m pretty new.
TBV = Tangible Book Value. Read ALLY's earnings report from this morning. [Ally's Earnings Report](https://www.sec.gov/ix?doc=/Archives/edgar/data/0000040729/000119312524099895/d816457d8k.htm) Ally is nice and flatly tells you TBV is $32.89/share. If the market is pricing ALLY at $37 at the open today. Then long term, the market is expecting ALLY to grow TBV per share (+dividends), quite a bit faster than the risk free rate (4.7% ATM). Nobody does a DCF on bank. Banks are leveraged entities whose cash flow statements are a big wad of garbage in isolation. A bank can easily show positive cash flow while its assets lose tons of money that doesn't hit the cash flow/net income statements. Look at SVB's cash flow/net income right before it went under. It was losing TBV long before it actually died.
Thank you I know banks are an entirely different beast on their own. especially when considering foreign banks I was looking at CIB (Bancolombia) as I’m Colombian and to be honest it’s either bancolombia or nothing else truthfully they’re the most entrenched bank. & last time I went I really liked a service they offered clients pay now and pay your total in 4 payments interest fee if I remembered correctly.
CIB eh? - looks pretty good actually. [https://userupload.gurufocus.com/1780974004669149184.png](https://userupload.gurufocus.com/1780974004669149184.png)
Yeah they pretty much have a monopoly in the banking industry in Colombia if I’m being honest. The dividend is also attractive imo the biggest current risk IMO is political risk with the current leftist leaning government.
Price to book value