This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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) for just 69% of its book value, and Bank of America (BAC) 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) 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) 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.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,051.73 -48.45 -0.28%
S&P 500 1,973.63 -4.59 -0.23%
NASDAQ 4,424.7040 -7.4420 -0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs