The Rise and Fall of Banks: What is the Future for Banks?
10 Pages Posted: 12 Oct 2020 Last revised: 18 Jan 2021
Date Written: August 31, 2020
As of 8/31/2020, the market cap (value) of Facebooks is $835.2 Billion, while the sum market caps of arguably top 5 Banks combined (J.P Morgan, Morgan Stanley, Bank of America, Wells Fargo and Citi Group) only $816.7 Billion. In fact, Facebook cap is 10 times larger than Morgan Stanley, the lead underwriter on the Facebook IPO. What is happening? How the value of a young (IPO in 5/2012) and such an average Tech company (less than half of Apple cap $2.21 Billion) exceeds the values of large banks with estimated asset management of $8.29 Trillion combined? Why a company with a relatively small revenue of only $75 Billion exceeds the value of these Banks with a combined revenue of $405 Billion (2019 revenues). The answer is simple, welcome to the tech revolution and good-bye to the industrial revolution. Facebook revenue grew 26.6% in 2019, while these five banks combined barely 3%; this is the entire story. With an easy access to raise capital via the stock market, and when investors can have zero commission fees due to the raise of Fintech (such as Robinhood), banks struggle. From the agriculture to the industrial revolutions, toward the current tech revolution, we are witnessing the rise and the fall of banks. Thus, Banks are no longer what called as “value stocks”; we brand them as ‘Sunset’ stocks: passed their prime time; and join long lists of companies like railroad, oil and gas, metals. This study also enhance our understanding of the valuation companies like Tesla, Amazon and PayPal stocks.
Keywords: Banks; stock market; value stocks; growth stocks; tech sector; financial sector
JEL Classification: G12
Suggested Citation: Suggested Citation