Price-to-Tangible-Book (P/TBV)
Definition
P/TBV is a bank's (or insurer's) market capitalization divided by tangible book value — equivalently, share price over tangible book value per share. It is the workhorse valuation multiple for financial institutions, used alongside P/E.
The theoretical anchor: P/TBV is driven by the spread between return on tangible common equity (ROTCE) and the cost of equity. A bank earning ROTCE equal to its cost of equity deserves roughly 1.0x; sustainably higher returns justify a premium, lower returns a discount — formalized in the Gordon-growth relationship P/TBV ≈ (ROTCE − g) / (COE − g). Trading below 1.0x signals the market expects value destruction, credit losses, or returns below the cost of equity.
Equity-side multiples are used because a bank's debt and deposits are operating items — enterprise-value multiples are not meaningful for banks.
Why interviewers ask
'How do you value a bank?' is the defining FIG technical, and P/TBV vs ROTCE regression is the expected centerpiece. Interviewers push on why EV/EBITDA fails for banks and why a bank might trade below tangible book — this multiple, and the ROTCE-vs-cost-of-equity logic behind it, is the answer.
Related terms
Interviews don't test definitions — they test recall under pressure.
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