Israeli Banks Trade at Similar Multiples to US Peers Amid Market Shifts

Israeli bank stocks are currently trading at price-to-earnings multiples of around 10-11, making them appear relatively inexpensive compared to the broader market, though they remain closely tied to the Israeli economy.

Globally, bank stocks have also seen declines, with a major US bank ETF dropping approximately 13% from its August peak. This has brought the average US bank stock multiple down to just over 10, a level comparable to Israeli banks, despite the US market typically trading at a premium.

Major US banks like Citigroup (trading at a P/E of around 10 based on next year's earnings), Wells Fargo (around 11), and Bank of America (around 12) are discussed, with analysts noting varying growth prospects and historical performance. JPMorgan Chase (13-14 P/E) and investment banks like Goldman Sachs (13 P/E) and Morgan Stanley (15 P/E) command higher multiples due to their strong earnings quality, market share, and reliance on trading and investment banking activities.

The article contrasts the impact of rising interest rates on banks in Israel and the US. In Israel, banks benefit from not paying interest on checking accounts, leading to increased profits as rates rise. Conversely, US banks face challenges as higher rates can increase funding costs faster than lending income, decrease the value of bonds on their balance sheets, and potentially slow economic activity, leading to higher credit losses.

Despite recent market drops, analysts see potential opportunities in US bank stocks, citing projected earnings growth of around 12% annually until 2028. However, the article concludes that investing in Israeli versus US banks involves different risk and reward profiles due to market size, business diversification, regulatory environments, and specific economic factors affecting each region.