Why are banks valued on price-to-tangible-book?
A bank's assets are mostly financial claims already carried near market value, so book equity is a meaningful number in a way it rarely is for a factory or a brand. Stripping out goodwill leaves tangible book, and the multiple a bank deserves follows from what it earns on that tangible equity.
How it works
For most companies book value is close to irrelevant: it records what assets cost, not what they are worth, and the things that actually generate profit — brands, software, research — are often not on the balance sheet at all. Earnings multiples exist partly to route around that problem.
A bank is the exception. Its balance sheet is the business: loans, securities and deposits, carried at or near fair value under the accounting rules banks follow. Equity is what is left when the liabilities are subtracted from those claims, and that residual is a real quantity rather than an accounting leftover.
Goodwill is what makes the word tangible do work. A bank that bought another bank carries the premium it paid as an asset, and that premium is not capital it can lend against or absorb losses with. Removing goodwill and other intangibles leaves the equity that actually backs the balance sheet, and regulators look at essentially the same thing.
The multiple then follows from profitability. A bank earning more on tangible equity than shareholders require deserves to trade above tangible book; one earning less deserves to trade below. That is why the ratio is read beside return on tangible equity rather than on its own — a low multiple on a bank earning poorly is not a discount, it is an assessment.
Earnings multiples still mislead here for a reason peculiar to lending: provisions for loan losses are an estimate, and they swing with the cycle. Reported earnings are at their smoothest right before the losses that were being under-provided for arrive, which is exactly when a low earnings multiple looks most attractive.
Where you see this in the terminal
Screenerfilter to financials, then open a bank — the justified multiple sits on its valuation panel
Sector dashboardsthe financials cut, where a bank sits beside the peers its multiple is read against
The valuation enginewhy the sector-correct multiple replaces the generic one for banks
The conventions behind it
What this page explains in plain language, the methodology documents state as conventions: the inputs, what is rejected, and the stated limits.
More of these: every concept page. The full transparency index is at Methodology.