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Submit Questions: Interview with a Bank Analyst


ExpectedValue
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My interview with Paul Sonkin in August was pretty popular. I'm doing a new interview with a value investing bank analyst who works for a large buy side fund. Unfortunately, the interview has to remain anonymous but he's legit and very bright.

 

I know that a number of value investors find financials tough to analyze, so this could be a good time to ask some questions about investing in that area.

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Thomas Brown of Bankstocks argued that the charge-offs to loan reserve ratio had no meaning due to variations in accounting treatment. Can the analyst describe a better criteria for measuring loan reserve adequacy?

 

Also, how long does a branch have to operate in an area before it's efficiency ratio normalizes?

 

Thanks Tariq.

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Thomas Brown of Bankstocks argued that the charge-offs to loan reserve ratio had no meaning due to variations in accounting treatment. Can the analyst describe a better criteria for measuring loan reserve adequacy?

 

Also, how long does a branch have to operate in an area before it's efficiency ratio normalizes?

 

Thanks Tariq.

 

Great questions! I'm going to do my interview this weekend, so I should have all the answers posted this by Sunday night.

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Hi Tariq,

I have posted the following questions on your blog too. I am not sure if its a little too late.

 

1. Commerce Bancorp (formerly CBH) used to be a unique bank which had a different business model. If it were a standalone company now, would it have been affected the same way as most of the big banks. Also, would it have taken more market share from the likes of BoA and Citi.

 

2. Are there any banks similar to Commerce Bancorp which are radically different ?

 

Thanks for doing this.

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Can the analyst describe a better criteria for measuring loan reserve adequacy?

 

 

Tariq,

 

This is a similar question to the one above, but I would like to hear how this bank analyst assesses the quality of a given bank's assets (or the lack of quality of the asset base).

 

-Crip

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