Why can't you use EV/EBITDA to value a bank?

EV/EBITDA works for most companies because it separates operations from financing. Enterprise value captures the operating business for all capital providers, and EBITDA measures operating earnings before interest. For a bank, that separation breaks down.

A bank's business is borrowing money, through deposits and wholesale funding, and lending it out at a higher rate. Debt is its raw material, and interest expense is its biggest operating cost, the equivalent of cost of goods sold for a manufacturer. Excluding interest to get EBITDA would remove the core of the business, and deciding which liabilities count as debt for enterprise value would be arbitrary.

So banks are valued on an equity basis. The most common multiples are P/E and price to tangible book value, and P/TBV is usually interpreted alongside return on tangible equity: a bank earning a higher return on equity than its cost of equity should trade above book value. For intrinsic value, analysts use a dividend discount model rather than an unlevered DCF, projecting dividends the bank can pay while keeping regulatory capital ratios, such as CET1, above required levels.