While bankers are never pleased with being paid in the deferred stock, sometimes it’s a blessing in disguise. Those in the U.S. who received deferred shares following the crisis likely aren’t complaining. Share prices of the 24 largest U.S. banks rose a combined 26% in 2013, despite revenues remaining relatively flat. The same KBW Index rose 30% in 2012. The markets rebounded well and bank stocks were seen as being relatively cheap.
The biggest winners for U.S. banks were employees of Goldman Sachs, Bank of America and Morgan Stanley, who have seen their employers’ share prices nearly doubled over the last two years. The average banker bonus in New York for 2013 exceeded $164k, mostly due to the vesting of deferred shares, according to the New York State Comptroller.
Unfortunately, banks have gotten off to a relatively difficult first quarter. Plus, most bank stocks on the whole appear to be priced more fairly, at least based on their tangible book value (TBV).
While TBV certainly isn’t the end-all-be-all for judging the value of a bank, it’s a decent barometer for judging the industry as a whole from an investor’s perspective. If you just got paid in deferred shares by one of the six largest U.S. banks, here’s how the current stock price compares to the book value of the firm. Share prices were logged on Tuesday afternoon. Tangible book values were based on each bank’s first quarter earnings report.
| Bank | Tangible Book Value | Share Price | Price to TBV |
| Bank of America | $13.61 | $14.95 | 1.1x |
| JPMorgan | $40.93 | $55.49 | 1.3x |
| Goldman Sachs | $143.12 | $156.54 | 1.09x |
| Morgan Stanley | $27.16 | $29.99 | 1.1x |
| Wells Fargo | $25.64 | $48.94 | 1.9x |
| Citigroup | $56.40 | $47.30 | 0.8x |
As you can see, Citigroup is the only bank that’s trading below its tangible book value. The bank’s recent issues – the Banamex loss and its failing of the Fed’s stress test – have affected its share price. Every other bank is trading above its tangible book value, with Wells Fargo easily leading the pack.
Compare the numbers to two years ago, and you can see why vested stock wasn’t such a bad gift at the time. Bank of America’s price-to-book value was 0.39 in February 2012. Five months earlier, JPMorgan and Citigroup bottomed out with a multiple of 0.67 and 0.42, respectively. Investors had little faith in banks, which ironically worked out for bankers as the industry has slowly turned around.
The bottom is now a distant memory. Analysts expect just a 4% jump in the shares of the nation’s six biggest banks in 2014, meaning “deferred” may soon become a four-letter word yet again.
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