Bank of America Corp (BAC), Citigroup Inc (C): Warren Buffett’s Key to Valuing Banks

There also might not be much reason to expect valuations to return to levels that prevailed in the past. Here’s Buffett a year ago:

Banks are not going to earn as good a return on equity in the future as they did five years ago. Their leverage is being restrained for good reason in many cases. So, banks earn on assets but the ratio of assets to equity, the leverage they have determines what they earn on equity.

Are banks like Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) cheap? Perhaps, although it’s not quite clear just by looking at book value.

The article Buffett’s Key to Valuing Banks originally appeared on Fool.com is written by Morgan Housel.

Morgan Housel owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway and Wells Fargo. The Motley Fool owns shares of Bank of America, Berkshire Hathaway, Citigroup, JPMorgan Chase, PNC Financial Services, and Wells Fargo.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.