The bank stocks were also alleged to be highly overpriced. Were the banks overvalued in 1929? Consider the nine banks reviewed by Wigmore ( 1985, p. 49). The highest 1929 market price of National City Bank was 13 times book value and the other money center banks were also selling at a large multiple of book value (the lowest was over 3 times book). Using the high 1929 prices the dividend yields were all less than 2 percent and the price-earnings ratios were all in excess of 30 (National City's price-earnings ratio was 120). A case can be made that the bank stocks were too high. But recognizing that in 1929 the books were a mixture of commercial banks and investment banks and their growth potentials were very large, it is difficult to reach a definite conclusion. The primary factor that gives one pause is the investment record of the two primary New York bank executives in 1929, Charles E. Mitchell and Albert Wiggin. Mitchell, the president of the bank, bought heavily of National City Bank stock in 1929 during the crash and already had significant holdings of his bank's stock. Mitchell clearly thought his bank deserved its price.
Wiggin, chairman of Chase National Bank, sold some of his bank's stock from September through November 1929, but after the October crash bought heavily long before the stock reached its nadir. By the end of 1933 the Wiggin family owned 194,000 shares. So there is some evidence that these two significant insiders did not think the stocks of their banks were terribly overpriced in 1929, though it can be argued reasonably that Wiggin was becoming nervous about the level of the market or the level of Chase's stock in September 1929--thus his sale of 42,506 shares. After utilities and investment trusts, bank stocks are the next candidate for being labeled "overpriced." They were not undervalued, using conventional financial measures.
Assuming they were to be allowed to earn only a fair return, utility common stocks were overvalued at the beginning of October 1929.
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Publication information: Book title: The Causes of the 1929 Stock Market Crash:A Speculative Orgy or a New Era?. Contributors: Harold Bierman Jr. - Author. Publisher: Greenwood Press. Place of publication: Westport, CT. Publication year: 1998. Page number: 100.
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