Greetings my fellow investor. Troubled world of banking continues to run Amok. C, BAC, ING, NBG, LYG, STD,....must I go on. Opportubity knocks? I see a worldwide mergermania in Banking. Lets have your opinion.
2) I like to use multiple linear regression (a math model) to calculate how the bank share price depends on their EPS and Bookvalue.
2A)In 2001, for the world banking sector the best linear approximation equation looked like: SharePrice= 0.27*EPS(ttm)+2.27*Bookvalue
For example, using the above eq. for JPM in 2001, this price estimation worked out like this: 0.27*2.15+2.27*21.5=49.2, while JPM actual price was 48 in 2001.
2B)Since that time, this equation changed dramatically, and now looks for top banks like this: Shareprice=3.1*EPS+0.6*BookValue
For example, in 2011 for JPM, the price can be estimated using this new equation as: 3.1*4.5+0.6*43.7= 40.1
Well, the current share price for JPM is 40.9 so, prety good.
2C) This just shows, that in 10 years the investors value perception changed a lot. The importance of the first parameter (EPS) increased from 0.27 to 3.1, which is like 11 times. So, today people put a much higher importance to EPS than they did 10 years ago. Paralel, people were ready to give -to own a bank share- over 2 times its Bookvalue 10 years ago, but today they are much more tightfisted and ready to give only 0.6 PB.
2D) Finally, this only shows you how much potential JPM (and ING) shares migth have in 10 years again.
Do the math for yourself. If the perception swings back in the next 10 years to the 2001 state of mind, we might get far over 100 for JPM.