Far more worryingly, this sorting of the wheat from the chaff occurred in the credit defaults swap market, which showed the perceivedrisk of bankruptcy ballooning for Citi and rising sharply for BoA, while JPMorgan remained more secure.
When greater risk and uncertainty in company and market prospects are perceived, price-earnings ratios contract, and consequently, valuations decline as investors are only willing to pay a smaller amount for a given level of earnings.