There's a lot of talk about new rules and stricter regulations decreasing bank margins, but many would be surprised by the relatively low P/E ratios seen among banks. Fool.com analyst Anand Chokkavelu looks at the numbers for several popular banks across the sector, all with much lower P/E ratios than you might expect. JPMorgan Chase (JPM 0.06%), for instance, comes in with a ratio just below 10.
The explanation here is that banks are making a killing on mortgages these days. People are refinancing due to the favorable economic enviroment, and banks are selling them into mortgage-backed securities at low rates. All of the banks that Anand mentions rely on the mortgage business, and as long as the housing recovery continues, things will continue to bode well for them. However, if today's low rates and good spreads begin to reverse, these banks' earnings could be compromised. Watch the video above for the full story.
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