In the wake of the financial crisis, after hundreds of new regulations and capital requirements were thrust upon the U.S. banks, there’s no way that we’ll see bank stocks take another nosedive in the near future, right?
Wrong. There may not be an American-centric banking crash anytime soon, but that doesn’t mean investors in international banks are immune to pain. After the U.S. financial sector outperformed the S&P 500 in 2012 and shares of a few banks such as Bank of America Corp (NYSE:BAC) more than doubled in value, many investors are beginning to worry that the rally for U.S. banks is nearing its end. First-quarter results highlighted tepid loan demand and discouraging revenue numbers.
However, with popular valuation-metrics, like price-to-tangible book value, still pointing to the undervalued nature of the sector, I believe U.S. banks seem to have more upside than downside in the long term. But if we look at some international bank stocks, the story looks surprisingly different.
After avoiding many of the pitfalls that plagued American banks, Canadian and Australian banks have remained strong. Banks in these countries have delivered generous returns on equity to shareholders over the past several years largely because of higher leverage. But has this perceived strength led to a run-up in the valuation of these banks that may not ultimately be able to meet investors’ lofty expectations?
Let’s take a look at each country’s four largest banks by looking at the following metrics:
- Total assets (USD, in billions)
- Average return-on-assets over the past two years
- Current share price-to-tangible book value
|National Australia Bank||791||0.64%||2.2|
|Westpac Banking Corporation (ADR) (NYSE:WBK)||700||1.00%||3.3|
|Australia & New Zealand Banking Group||697||0.93%||2.5|
|Royal Bank of Canada (USA) (NYSE:RY)||832||0.93%||2.9|
|Toronto-Dominion Bank (USA) (NYSE:TD)||813||0.87%||2.5|
|The Bank of Nova Scotia (USA) (NYSE:BNS)||713||0.99%||2.6|
|Bank of Montreal (USA) (NYSE:BMO)||538||0.75%||1.9|
|JPMorgan Chase & Co. (NYSE:JPM)||2,389||0.90%||1.2|
|Bank of America Corp (NYSE:BAC)||2,175||0.13%||0.9|
|Citigroup Inc. (NYSE:C)||1,882||0.51%||0.9|
|Wells Fargo & Co (NYSE:WFC)||1,437||1.34%||1.6|
First reaction: “Wow, U.S. banks really are enormous.” But that’s a whole other story that fellow Fool John Maxfield detailed here. Second reaction: “Boy, Australian and Canadian bank investors sure are optimistic!” — at least compared with U.S. bank investors.