Despite banking experiencing the two best years since before the Great Recession, the industry has recently seen a substantial decline in its valuation relative to other industries. Senior partner Asheet Mehta and coauthors find that as of 2023, the banking industry had the lowest price-to-book ratio, at 0.9. This valuation suggests the market may anticipate that banking will erode economic value as a whole, for various reasons. For example, banks might not be able to count on raising productivity, and improvements in margins may not be able to come from more cost-cutting measures.
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A line chart compares the price-to-book ratio of the global banking industry with all other industries from 2003 to 2023, and a bar chart shows the price-to-book ratio across 1 4 industry sectors in 2023. The line chart shows that in 2003, the banking industry had a price-to-book ratio below 2.0×, while all other industries were at ~2.8×. By 2023, the banking industry’s price-to-book ratio declined to just below 1.0×, while all other industries again reached 2.8×, representing a 68% difference. A shaded area highlights the growing gap in valuation between the 2, indicating an expanding discount applied to the banking sector by capital markets over the 20-year period.
The bar chart shows that the technology, media, and telecom sector had the highest price-to-book ratio in 2023 at 4.7, followed by business services at 4.5 and pharmaceutical and medical products at 4.1 . The nondepository financial institutions sector and the global banking industry sector show ratios of 2.7 and 0.9, respectively, which were well below the other sectors.
Footnote: Average excluding outliers and firms with a negative price-to-book ratio. Based on ~15,000 publicly traded companies.
Source: McKinsey Panorama; McKinsey Value Intelligence.
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To read the report, see “Global Banking Annual Review 2024: Attaining escape velocity,” October 17, 2024.