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Big Banks and the Mendoza Line

NEW YORK ( TheStreet) -- In normal times, the biggest banks trade at around twice their book value.

This makes sense. One would assume that a bank could make money on assets. What else are they there?

But these are not normal times. Since the collapse of 2008, three of the four biggest banks have been consistently selling at a discount to book, often a substantial discount.

Even today, you can buy shares of Citigroup (C - Get Report) for just 69% of its book value, and Bank of America (BAC - Get Report) for 60% of its book value.

One of my great memories from the year of collapse was TheStreet's Jim Cramer insisting on CNBC that Wells Fargo (WFC - Get Report) would come out all right, that it was the best run of the big banks. Based on its price to book, he was absolutely right. The bank's value has dipped below book only a few times since then, and then briefly -- it now trades for a premium of 33% to its book value.

The question is important because, as TheStreet's Richard Suttmeier noted in his heavily syndicated piece Thursday, these four banks hold 44% of the total assets held by FDIC-insured institutions.

The reason the big four are called "too big to fail," remember, is that they had all sorts of bad assets, mostly mortgage assets, during the crisis. Bank of America had Countrywide Financial, and JP Morgan Chase (JPM - Get Report) got Washington Mutual, for instance.

These institutions had bad assets -- loans they could never collect on -- so the price-to-book marker, for me, is a measure of just how far we've come in working out the rot from that era.

But there's more to this than just asset value. There remains an assumption the big banks are crooked.

Events like the Libor scandal, which Suttmeier wrote about last year, and the "London Whale" trade, for which JPMorgan CEO Jamie Dimon apologized in a letter to shareholders, merely confirm what most people assume.

It's what I assume, too.

I learned recently I needed a commercial business checking account for my LLC, which I decided to form after 30 years of freelancing because my wife is doing well and I don't want people going after her assets if they sue me. (So far, knock on wood, no one has.) But I found myself yelling at her that I would not, no, never put my money into one of these banks, because they had "gone to the dog track" with depositors' funds, and I eventually found a local bank instead.
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