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In 2008, a famously wealthy man bet big on Bear Sterns, citing that it was absurd that it was trading below book value. That man is now only slightly wealthy. The lesson was that you should trust book value as a floor on valuation only if you're sure of the quality of underlying asset values.

Now, apparently, Citi and BofA are trading at half of book value. Yet since 2008, bank capital requirements have supposedly made the banks much stronger. I must conclude that investors are questioning the valuation of these banks assets.

From WSJ article titled J.P. Morgan CEO Jamie Dimon Buys 500,000 of Bank’s Shares

Citigroup and Bank of America now trade for about half their book value, a level last seen in late 2012.

Are there particular assets that are causing these two banks to be valued lower relative to their book values than the other banks? Or is it a residual loathing based on their being the biggest losers of 2008 that are still around today? Are there any hard numbers to back up this devaluation?

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Its not just Citi and BoFA, even Barclays, HSBC and other large Banks are trading below book value in markets they are listed.

Are there particular assets that are causing these two banks to be valued lower relative to their book values than the other banks?

There no particular assets. Given the current economic situation most Banks are not making good returns, i.e. expected returns of markets are around 10-12% and the returns getting generated are around 4-6%. The overall slow down in various segments as well as regulations in most countries mean that banks have to relook at the business model in short term and generate more revenue. The market believes that Banks may loose money faster and hence the negative outlook and the trading below the book value. Note Book Value is derived in ideal conditions, i.e. when the company is healthy. If any company were to sell the assets in distress, the actual funds raised would be quite a bit less than Book Value. Its also to be noted that typically Banks would not close out and hence Book Value to an extent is just an indicator.

Or is it a residual loathing based on their being the biggest losers of 2008 that are still around today?

The 2008 has gone past. This is more recent. If you look most of these banks were doing quite well till last year and had recovered substantially after 2008.

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