FIG (Banks & Insurance)
Why do some banks trade below tangible book value — and is that automatically a buy signal?
Model answer
A bank trades below TBV when the market expects it to earn LESS than its cost of equity: with ROTE of 8%, COE of 10%, and growth of 2%, justified P/TBV = (8 − 2)/(10 − 2) = 0.75x — every retained…
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