How Would You Value the Federal Reserve?

Nov 17, 2022 | Finconomics 101, No Bull Economics


Here is an idea: let’s take the Federal Reserve public in the world’s largest IPO. We could ask the private banks that currently own the Fed to donate the proceeds of the IPO to pay down government debt and then we could have the Fed report to a board of directors, investors and Wall Street analysts like all the other massive financial institutions. If Fed shares (let’s pretend the ticker was PRNT) fell, it will indicate that the central bank is doing a bad job in the market’s estimation. So how much would the Fed fetch in an IPO??

Using BlackRock as a proxy, we note that Wall Street values BLK shares at $114 billion (market cap as of 11/15/22) which represents 15x EBITDA (this company generated $18.6B in revenue & $7.4B in EBITDA during the last 12-month period ending 9/30/22). The primary source of BlackRock’s profits come from its “assets under management” which represented $7.961 trillion as of 9/30/22, down -16% y/y because of losses in the stock & bond markets. Notably, assets under management represent investments held in different mutual funds, ETFs, etc. owned by BlackRock.

The Federal Reserve had $8.8 trillion in assets & generated $108 billion in net income from operations for the year ended 12/31/21. The Fed owns its massive bond portfolio outright while BlackRock simply manages assets on behalf of other investors & this explains why the Fed is 15x more profitable. Using the 15x EBITDA multiple as a proxy, PRNT’s market cap would be something like $1.6 trillion (admittedly less than its $8.8T portfolio but, hey, that is supposed to shrink). In any case, we’re not sure if it would upset Powell, but that doesn’t come close to Apple’s $2.4 trillion market cap. Well, we know how PRNT’s management team could fix that – higher rates and a larger portfolio could close that market cap gap with AAPL pretty quickly…  

BlackRock & Fed Chart

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