Morgan Stanley, Goldman Sachs Fall Below Tangible Book Value

  • Firms trade below liquidation value for first time in 2 years
  • Bank shares have plunged as China intervenes in its market

Morgan Stanley and Goldman Sachs Group Inc. are trading below their tangible book value for the first time in more than two years.

The two largest equity-trading banks, which report fourth-quarter earnings this month, dropped more than 3 percent Thursday to fall below tangible book value, a measure of what the companies would theoretically be worth if liquidated. Goldman Sachs fell 0.4 percent to close at $163.94 Friday in New York, while Morgan Stanley slid an additional 2.1 percent to $28.38.

Bank stocks have plunged amid a selloff that has erased $4 trillion from global equities this year as Chinese authorities set a higher yuan reference rate and intervened in its equities markets. The recent volatility threatens to halt the flow of mergers that boosted both firms’ investment-banking revenue in 2015 and further delay the increase in trading activity that executives have been awaiting for several years.

The price to tangible book value ratio is closely watched by bank investors and analysts. From Goldman Sachs’s initial public offering in 1999 to the 2008 financial crisis, neither firm’s ratio fell below 1, and both traded at more than twice tangible book in 2007.

The ratio is based on Bloomberg data using common shares outstanding to calculate tangible book value per share. Goldman Sachs, in its quarterly regulatory filing, calculates a tangible book value per share of $162.11, using a share count that includes some restricted stock units. By that measure, it is still trading above tangible book.

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