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The Institutional Risk Analyst

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Update: JPMorganChase & Wells Fargo

January 13, 2023 | Premium Service | Bank earnings kicking off Friday the 13th of January seems a little less than auspicious, but prices are rising even as earnings soften. JPMorganChase (JPM) closed yesterday a bit north of 1.7x nominal book, but what is the real book value ex-Fed of the large banks? Nobody seems to care about tangible value much less about premium valuations in the world of institutional equities.


We are scheduled on CNBC Worldwide Exchange 5:30 ET Tuesday January 17th to talk bank earnings with Brian Sullivan.



To understand the valuation of bank stocks as year one of quantitative tightening approaches, discard any concern about bank fundamentals and instead ponder the wants and needs of Buy Side advisors. Assets under management have been taking a beating over the past year, thus banks are both a shelter from the storm and a potential source of alpha, yet very expensive.


Tom McClellan noted recently that if the stock market in 2023 was going to continue following the pattern from 2008, “then we should be seeing a sharp decline right now.” Yep. Instead, he notes, “the stock market is showing nice strength in January 2023.” Especially with LT interest rates falling.


One of the sectors that has been most resilient to the ill-effects of the Fed’s interest rate hikes has been financials, which have rallied as long-term rates have fallen. Falling rates are good for financials, rising rates are bad, thus as the Treasury yield curve has rallied bank stocks have risen. Remember, rising LT rates and widening spreads are bad for book value.

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