# Bank valuations rely on a strong investment-banking cycle

Markdown copy of https://realalpha.app/s/bank-valuations-rely-on-a-strong-investment-banking-cycle/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Steve Eisman](https://realalpha.app/people/steve-eisman/) (Host)
- Show: The Real Eisman Playbook
- Episode: [Market Cracks Under AI Debt Burden | The Weekly Wrap](https://realalpha.app/v/y45yqiCdfI4/), Oct 16, 2026
- Moment: 20:08 to 22:29 of the episode (2 min), playing on https://realalpha.app/s/bank-valuations-rely-on-a-strong-investment-banking-cycle/; the episode from there: https://realalpha.app/v/y45yqiCdfI4/?t=1208

## Quote

> “To invest in banks at these valuation levels requires you assuming that the **investment banking cycle remains very strong**.”
> — [Steve Eisman](https://realalpha.app/people/steve-eisman/) at [21:45](https://realalpha.app/v/y45yqiCdfI4/?t=1305) · The Real Eisman Playbook

## Takeaways

1. AI financing needs and M&A are supporting investment-banking results.
2. Banks above 20% ROTCE trade at 2.6–3.4× tangible book.
3. At current valuations, he sees little margin for error.

## About this segment

Steve Eisman links strong investment-banking results to AI financing needs and M&A, and higher bank multiples to returns on tangible equity. Current prices assume the deal cycle stays strong, leaving little room for error.

From “Market Cracks Under AI Debt Burden | The Weekly Wrap”, Oct 16, 2026. [Watch the full episode](https://realalpha.app/v/y45yqiCdfI4/)

## Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

[20:21](https://realalpha.app/v/y45yqiCdfI4/?t=1221) in a pretty golden age for investment banking. Trading volumes are high, AI is creating massive financing needs, and M&A is strong, and that's why despite the weakness in fixed income trading, investment banking results remained strong at Goldman and Morgan Stanley. Goldman reported a good quarter of 17.01 earnings per share versus 12.25, so that's 39% growth. The overall results were good, but if you want to get nitpicky, FIC, which stands for fixed income trading, was weaker than expected. On the other hand, Equities did very well, up 72% versus last year.

[20:53](https://realalpha.app/v/y45yqiCdfI4/?t=1253) Goldman's results indicate that higher rates can hurt the fixed income trading business as clients take a pause because higher rates scare them. And like Goldman, Morgan Stanley produced powerful numbers. Revenue, while not at record levels, was up 12% versus last year. EPS of 303 was up 8% versus last year. And the return on tangible common equity was a very strong 23%. As for how to value banks, the easiest and most common and consistent way is to look at the return on tangible common equity.

[21:22](https://realalpha.app/v/y45yqiCdfI4/?t=1282) The higher that percentage, the higher the price to tangible common equity. That's why Goldman, J.P. Morgan, and Morgan Stanley are valued at 2.6 to 3.4 times tangible book. Their return on tangible common equities exceed 20%. At the same time, Wells Fargo, Bank of America, and Citi are at 1.2 to 1.8 times because their return on tangible common equity is 12 to 16%. What should you do about investing in the banking sector right now?

[21:52](https://realalpha.app/v/y45yqiCdfI4/?t=1312) Now, some of the froth has come out since the July peak, but frankly, not that much. To invest in banks at these valuation levels requires you assuming that the investment banking cycle remains very strong. I said exactly that when the banks reported second quarter results, and I reiterated. There is just not much margin for error at these valuation levels. To me, it's just not that great an entry point.

[22:18](https://realalpha.app/v/y45yqiCdfI4/?t=1338) This week on October 12th on our free service, we posted an interview with recurring guest Gary Marcus.