Growth in tangible book value dilution

As bank executives look to add value through mergers and. Why did bank of america change its focus to tangible book value. The last time it had a sustained drop was right after the financial crisis in. Companies use the pricetobook ratio pb ratio to compare a. Tangible book value per share is the pershare value of a companys equity after removing any intangible assets. Tangible book value dilution is a way of life in larger transactions and is. Why did bank of america change its focus to tangible book. As a result, price to tangible book value tbv became a driving metric for bank valuations and bank merger pricing. This is another reit that cant afford its highyield.

Is tangible book value per share dilution an insurmountable investor fixation. The tangible book value per share dilution is estimated to be less than 3 % with an estimated earn back period of less than 4 years. A tangible asset is anything that has commercial or exchange value. The different approaches to calculating tangible book value dilution in. Enhanced market presence and strong funding growth opportunities expected highly accretive to eps with a short tangible book value dilution earn back.

As acquirers have employed different methods to calculate tbv dilution arising from deals, analysts have questioned the math in some transactions, particularly in cases where acquirers project. The following table illustrates this dilution on a per share basis. Tangible book value per share tbvps investing answers. Transactions that are accretive to earnings and earnings growth. The views and opinions expressed in this piece are those of the author and do not necessarily represent the. In this case it is prudent to subtract goodwill from book value, resulting in a tangible book value. Tangible book value per share tbvps equals a companys net tangible assets divided by its number of shares outstanding. Cytx offering, immediate dilution and increase in net. If growing book value was the mark before the financial crisis, why has its.

One widely used but misleading metric is the dilution of tangible book value tbv that occurs. Tangible book value per share tbvps definition investopedia. The different approaches to calculating tangible book value dilution in bank deals have caused a divide between bankers and the investment community. Share buybacks can be a boost to corporate earnings per share eps, but a drag on book value growth. To calculate the tangible book value per share, malcolm finds that the firms number of shares outstanding is 2,000,000 million. The model assumes the acquirers tbv will continue to grow, but in. This limitation can be damaging for banks and thrifts whose growth. The acquisition is expected to increase northwests return. One way to disguise the dilution to the value of its existing shares was thus to. Many value investors use the priceto book ratio to find undervalued stocks. Tbvps dilution could be recovered faster than today when returns are on the order of 10%. By a subtle change in focus, bank of america was able to recast its performance over the past eight years. The tangible book value per share is reduced to a negative 6.