The average net interest margin of American banks got squeezed when the US Federal Reserve and European Central Bank started cutting interest rates after the 2008 financial crisis. The stock market valuation of the banking industry took a beating with prospects of a slower economy, threats of more non-performing loans and heavy overhead costs.
According to McKinsey, cumulative market capitalisation of the 200 largest banks at the end of 2019 had a price-to-book valuation of between 0.8 to 1.2. Meanwhile, the seven largest Big Tech companies had price-to-book valuations above 5, with both groups valued at roughly US$6 trillion in market cap.
Today, the bank with the largest market cap is JPMorgan, ranked 14th in the world at around US$630 billion. Of the top eight companies – valued at more than US$1 trillion each – seven are tech companies. The other is Saudi oil giant Aramco. The largest Chinese bank ICBC has a price-to-earnings ratio of 4.5 compared with 12.5 for JPMorgan, while Alphabet and Nvidia have ratios of 23.6 and 65.8, respectively.
