15 Bank Names on My Mind

Updates to P/TBV & ROTCE Scatter

In the world of bank stock investing, understanding the relationship between forward return on tangible common equity (ROTCE) and price-to-tangible book value (P/TBV) is crucial. This correlation isn't just another financial metric - it's the financial equivalent of a "tell" in poker. Just as a skilled poker player watches for subtle cues that reveal the strength of an opponent's hand, savvy investors can use this relationship to spot mispriced stocks before the market catches on. The P/TBV that investors are willing to pay for a given forward ROTCE can signal whether a bank is undervalued or overpriced, giving you a critical edge in your investment decisions.

But here's the rub: the financial world is constantly shifting, and yesterday's winning hand might be today's losing bet. This is where we can take a page from JPMorgan Chase's Jamie Dimon and his appreciation of the OODA loop - Observe, Orient, Decide, Act. This concept, developed by military strategist John Boyd, emphasizes the importance of continuous reassessment and adaptation. In banking, as in aerial combat, success goes to those who can process information and make decisions faster than their opponents. Dimon's application of this principle in banking mirrors what successful investors must do: constantly observe market conditions, orient themselves to new information, decide on a course of action, and act decisively. It's not enough to make a good decision once; you must be ready to reassess and adjust your strategy as new information comes to light.

That’s why I constantly update & review this data set.

Right now, three major narratives are reshaping the banking landscape, and each requires careful consideration:

1. The upcoming election: The potential for a change in administration brings with it the promise of shifts in fiscal policy. A Trump victory could mean lower taxes and more business-friendly policies, but the ease of implementing these changes hinges on whether one party can secure a decisive victory across the board. The political landscape will have far-reaching implications for bank regulations, tax policies, and the overall economic environment.

2. Basel III capital rule updates: The banking world is holding its breath for the final Basel III rules, which could arrive as early as late September. Initial fears of dramatically increased capital requirements for large banks have softened, with current expectations leaning towards more modest increases. However, even small changes in capital requirements can have significant impacts on a bank's ability to lend and generate returns, making this a critical factor to watch.

3. Interest rates and recession fears: The specter of fluctuating interest rates and a potential economic downturn looms large over the banking sector. Banks must walk a tightrope, balancing the potential for higher net interest margins in a rising rate environment against the increased credit risk that comes with economic uncertainty. How banks navigate this challenging environment will separate the winners from the losers in the coming months.

Remember, a real poker player doesn't blame the dealer for the cards they're dealt - they focus on playing their hand to the best of their ability. In the world of bank stock investing, this means staying alert, continuously reassessing your position, and being ready to act on new information. The market is the dealer, and it's dealt us a complex hand of political uncertainty, regulatory change, and economic challenges. Your success will depend not on the hand you're dealt, but on how well you play it.

Read on for the list of 15 names I’m looking at, and the full updated P/TBV and ROTCE scatter as of September 10th.