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Good (Bad) Banks and Good (Bad) Investments: At the right price…

by Aswath Damodaran

In my last post, I looked at banking as a business, and used  a simple banking framework to advance the notion that the key ingredient tying together the banks that have failed so far in 2023 is an absence of stickiness in deposits, created partially by depositor and deposit characteristics (older are  stickier than younger) and partly by growth in deposits (high growth increases stickiness). I also used the banking framework to argue that good banks have stickier deposits, with a higher precent of these deposits being non-interest bearing, that they invest in loans and investment securities on which they earn interest rates that cover and exceed the default risk in these investments. While differentiating between good and bad banks can be straightforward, it does not follow that buying good banks and selling bad banks is a good investment strategy, since its success depends entirely on what the market is incorporating into stock prices. An investor who buys a good bank at too high a price, given its goodness, will underperform one who buys a bad bank at too low a price, given its badness. In this post, I will begin by looking at  how to value banks and follow up with an examination of investor views of banking have changed, by looking at pricing, before examining divergences in how banks are priced in the market today.

The Intrinsic Value of Bank Equity

   I am a dabbler in all things valuation-related, and I find the process fascinating, as (Read more...)

Breach of Trust: Decoding the Banking Crisis

by Aswath Damodaran

In March 2023, the fall of Silicon Valley Bank shocked investors not only because it was unforeseen, but also because of the speed with which it unfolded. That failure has had a domino effect, with Signature Bank falling soon after, followed by Credit Suisse in April 2023 and by First Republic last week. The banks that have fallen so far collectively controlled more deposits than all of the banks that failed in 2008, but unlike that period, equity markets in the United States have stayed resilient, and even within banking, the damage has varied widely across different segments, with regional banks seeing significant draw downs in deposits and market capitalization. The overarching questions for us all are whether this crisis will spread to the rest of the economy and market, as it did in 2008, and how banking as a business, at least in the US, will be reshaped by this crisis, and while I am more a dabbler than an expert in banking, I am going to try answering those questions.

The Value of a Bank

    Banks have been an integral part of business for centuries, and while we have benefited from their presence, we have also been periodically put at risk, when banks over reach or get into trouble, with their capacity to create costs that the rest of us have to bear. After every banking crisis, new rules are put into place to reduce or minimize these risks to the economic system, but in spite (Read more...)

Visualized: Real Interest Rates by Country

by Bruno Venditti
This post is by Bruno Venditti from Visual Capitalist

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Visualized: Real Interest Rates by Country

Visualized: Real Interest Rates of Major World Economies

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on real assets and resource megatrends each week.

Interest rates play a crucial role in the economy because they affect consumers, businesses, and investors alike.

They can have significant implications for people’s ability to access credit, manage debts, and buy more expensive goods such as cars and houses.

This graphic uses data from Infinity Asset Management to visualize the real interest rates (ex ante) of 40 major world economies, by subtracting projected inflation over the next 12 months from current nominal rates.

ℹ Ex ante is Latin for “before the event”, and in this case refers to the fact that this data uses projected inflation rates to calculate real interest rates.

Nominal Interest Rates vs. Real Interest Rates

Nominal interest rates refer to the rate at which money can be borrowed or lent at face value, without considering any other factors like inflation.

Meanwhile, the real interest rate is the nominal interest rate after taking into account inflation, reflecting the true cost of borrowing or lending. Real interest rates can fluctuate over time and are influenced by various factors such as inflation, central bank policies, and economic growth. They can also influence economic growth by affecting investment and consumption decisions.

According to the International Monetary Fund (IMF), since the mid-1980s, real interest (Read more...)

Visualizing the Assets and Liabilities of U.S. Banks

by Niccolo Conte
This post is by Niccolo Conte from Visual Capitalist

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Voronoi diagram of the assets and liabilities of U.S. banks

Understanding the Assets and Liabilities of U.S. Banks

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on real assets and resource megatrends each week.

The U.S. banking sector has more than 4,000 FDIC-insured banks that play a crucial role in the country’s economy by securely storing deposits and providing credit in the form of loans.

This infographic visualizes all of the deposits, loans, and other assets and liabilities that make up the collective balance sheet of U.S banks using data from the Federal Reserve.

With the spotlight on the banking sector after the collapses of Signature Bank, Silicon Valley Bank, and First Republic bank, understanding the assets and liabilities that make up banks’ balance sheets can give insight in how they operate and why they sometimes fail.

Assets: The Building Blocks of Banks’ Business

Assets are the foundation of a bank’s operations, serving as a base to provide loans and credit while also generating income.

A healthy asset portfolio with a mix of loans along with long-dated and short-dated securities is essential for a bank’s financial stability, especially since assets not marked to market may have a lower value than expected if liquidated early.

ℹ Mark-to-market means current market prices are being used to value an asset or liability on a balance sheet. If securities are not marked to market, their value could be different once liquidated.

As (Read more...)

Visualizing the Assets and Liabilities of U.S. Banks

by Niccolo Conte
This post is by Niccolo Conte from Visual Capitalist

Subscribe to the Elements free mailing list for more like this

Voronoi diagram of the assets and liabilities of U.S. banks

Understanding the Assets and Liabilities of U.S. Banks

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on real assets and resource megatrends each week.

The U.S. banking sector has more than 4,000 FDIC-insured banks that play a crucial role in the country’s economy by securely storing deposits and providing credit in the form of loans.

This infographic visualizes all of the deposits, loans, and other assets and liabilities that make up the collective balance sheet of U.S banks using data from the Federal Reserve.

With the spotlight on the banking sector after the collapses of Signature Bank, Silicon Valley Bank, and First Republic bank, understanding the assets and liabilities that make up banks’ balance sheets can give insight in how they operate and why they sometimes fail.

Assets: The Building Blocks of Banks’ Business

Assets are the foundation of a bank’s operations, serving as a base to provide loans and credit while also generating income.

A healthy asset portfolio with a mix of loans along with long-dated and short-dated securities is essential for a bank’s financial stability, especially since assets not marked to market may have a lower value than expected if liquidated early.

ℹ Mark-to-market means current market prices are being used to value an asset or liability on a balance sheet. If securities are not marked to market, their value could be different once liquidated.

As (Read more...)

Ranked: The Largest Bond Markets in the World

by Dorothy Neufeld
This post is by Dorothy Neufeld from Visual Capitalist

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The Largest Bond Markets in the World

The Largest Bond Markets in the World

This was originally posted on Advisor Channel. Sign up to the free mailing list to get beautiful visualizations on financial markets that help advisors and their clients.

In 2022, the global bond market totaled $133 trillion.

As one of the world’s largest capital markets, debt securities have grown sevenfold over the last 40 years. Fueling this growth are government and corporate debt sales across major economies and emerging markets. Over the last three years, China’s bond market has grown 13% annually.

Based on estimates from the Bank for International Statements, this graphic shows the largest bond markets in the world.

ℹ Total debt numbers here include both domestic and international debt securities in each particular country or region. BIS notes that international debt securities are issued outside the local market of the country where the borrower resides and cover eurobonds as well as foreign bonds, but exclude negotiable loans.

Ranked: The World’s Top Bond Markets

Valued at over $51 trillion, the U.S. has the largest bond market globally.

Government bonds made up the majority of its debt market, with over $26 trillion in securities outstanding. In 2022, the Federal government paid $534 billion in interest on this debt.

China is second, at 16% of the global total. Local commercial banks hold the greatest share of its outstanding bonds, while foreign ownership remains fairly low. Foreign interest in China’s (Read more...)

Ranked: The U.S. Banks With the Most Uninsured Deposits

by Dorothy Neufeld
This post is by Dorothy Neufeld from Visual Capitalist

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The U.S. Banks With the Most Uninsured Deposits

The U.S. Top Banks by Uninsured Deposits

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on natural resource megatrends in your email every week.

Today, there is at least $7 trillion in uninsured bank deposits in America.

This dollar value is roughly three times that of Apple’s market capitalization, or about equal to 30% of U.S. GDP. Uninsured deposits are ones that exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation (FDIC), which was actually increased from $100,000 after the Global Financial Crisis. They account for roughly 40% of all bank deposits.

In the wake of the Silicon Valley Bank (SVB) fallout, we look at the 30 U.S. banks with the highest percentage of uninsured deposits, using data from S&P Global.

Which Banks Have the Most Uninsured Deposits?

Over the last month, SVB and Signature Bank went under at lightning speed.

Below, we show how their level of uninsured deposits compare to other banks. The dataset includes U.S. banks with at least $50 billion in assets at the end of 2022.

Top 30 RankBankUninsured Deposits (%)Total Assets (B)
1Silicon Valley Bank*93.8$209
2Bank of New York Mellon92.0$325
3State Street Bank and Trust Co.91.2$298
4Signature Bank*89.3$110
5Northern Trust Co.81.6$155
6Citibank NA73.7$1,767
7CIBC Bank USA73.1$51
(Read more...)

Where People Borrow Money From, by Country Income Level

by Freny Fernandes
This post is by Freny Fernandes from Visual Capitalist

When making the decision to borrow money, do you turn to friends and family for financial help, or do you go to a financial institution like a bank or credit card company?

On a country-to-country basis, this choice often depends on a mix of various factors, including the availability of financial services, financial literacy, and the cultural approach to the very concept of lending itself.

In these graphics, Richie Lionell sheds some light on where people borrow money from, using the 2021 Global Findex Database published by the World Bank.

Borrowing From Financial Institutions

To compare borrowing practices across both location and income level, the dataset features survey results from respondents aged 15+ and groups countries by region except for high-income countries, which are grouped together.

borrow money from financial institutions

In 2021, most individuals in high income economies borrowed money from formal financial institutions.

CountryRegionBorrowed from a financial institution
CanadaHigh income81.01%
IsraelHigh income79.52%
IcelandHigh income73.36%
Hong Kong SAR, ChinaHigh income70.01%
Korea, Rep.High income68.64%
NorwayHigh income66.82%
United StatesHigh income66.21%
Taiwan, ChinaHigh income61.95%
SwitzerlandHigh income61.40%
JapanHigh income61.19%
New ZealandHigh income60.38%
AustraliaHigh income57.29%
AustriaHigh income56.52%
ItalyHigh income55.01%
United KingdomHigh income54.98%
GermanyHigh income54.68%
IrelandHigh income54.11%
DenmarkHigh income53.16%
FinlandHigh income52.98%
SpainHigh income51.92%
SwedenHigh income48.69%
BelgiumHigh income47.98%
FranceHigh income44.37%
Singapore (Read more...)

Ranked: The World’s Most Valuable Bank Brands (2019-2023)

by Marcus Lu
This post is by Marcus Lu from Visual Capitalist

most valuable bank brands

The World’s Most Valuable Bank Brands (2019-2023)

Since 2019, Chinese banks have held the top four spots on Brand Finance’s Banking 500—an annual ranking of the most valuable bank brands.

Brand value in this context is a measure of the “value of the trade mark and associated marketing IP within the branded business”. In other words, it measures the value of intangible marketing assets, and not the overall worth of the business itself.

In this infographic, we’ve visualized the Banking 500’s top 10 brands since 2019 to show you how the ranking has evolved (or stayed the same).

Top Bank Brands of 2023

The 10 most valuable bank brands of 2023 are evenly split between China and the United States. In terms of combined brand value, China leads with $262 billion to America’s $165 billion.

RankBankBrand Value (USD billions)
1🇨🇳 ICBC$69.5
2🇨🇳 China Construction Bank$62.7
3🇨🇳 Agricultural Bank of China$57.7
4🇨🇳 Bank of China$47.3
5🇺🇸 Bank of America$38.6
6🇺🇸 Wells Fargo$33.0
7🇺🇸 JP Morgan$31.8
8🇺🇸 Chase$31.3
9🇺🇸 Citi$30.6
10🇨🇳 China Merchants Bank$24.5

Chinese banks have a massive market to serve, which helps to lift the perceived value of their brands. For example, Industrial and Commercial Bank of China (ICBC) serves over 500 million individuals as well as several million business clients.

It’s worth noting that ICBC is the world’s largest bank in terms of assets under management ($5.5 trillion as of Dec 2021), and in terms of (Read more...)

The Top 10 Biggest Companies in India

by Omri Wallach
This post is by Omri Wallach from Visual Capitalist

The Top 10 Biggest Companies in India

The Top 10 Biggest Companies in India

When India hosted the 13th BRICS summit in September 2021, it was the sixth-largest economy in the world with a GDP of $3.05 trillion.

That’s more than double the GDP it had when the country first joined the group of emerging economies in 2009 (alongside Brazil, Russia, China and later South Africa), at $1.3 trillion.

What are the major industries and companies driving this growth in GDP, and rising alongside it? This time we’re highlighting the top 10 biggest companies in India, the world’s most populous democracy.

What Are the Biggest Public Companies in India?

India’s growth to one of the world’s most powerful economies came extremely quickly, considering it only became a federal republic in 1950.

In 1951, the country was considered relatively impoverished compared to the Western world, with 361 million people, a per-capita income of just $64, and a literacy rate of 17%. By 2021, the population had surged to 1.2 billion, income rose to $1,498, and literacy climbed to 74%.

And most of that growth was fueled internally, as the Indian government was largely protectionist until the 1990s. Today, its free market policies and wide cultural reach help bolster the country’s massive industrial, agricultural, and telecommunications industries.

Here are India’s biggest public companies by market capitalization in October 2021:

Top 10 Indian CompaniesCategoryMarket Cap (USD)
Reliance IndustriesOil and Gas$230.7B
Tata GroupInformation Technology$186.7B
HDFC BankFinancial$135.1B
InfosysInformation Technology (Read more...)