The Banks: those closest versus outside economist? What's the truth?

[Guest ericopoly]

folks who basically won't invest in banks due to leverage (B. Berkowitz

 

Really?  Bruce is a shareholder of AmeriCredit.  I don't have a problem with AmeriCredit, but I think it's an odd choice for somebody who shuns leverage.

 

 

[benhacker]

I can't find the reference Eric, but BB has said in the past that he doesn't like the finance sector due to leverage and will never make a highly leverage company (specifically any bank) a big holding.  I'm not familiar with ACF, but much of their leverage is non recourse, and it's a samll holding.  He rarely has had big financial stakes outside of insurance... and his holdings are usually low leverage varieties.

 

I can't find the interview with him, but I own FAIRX in a small amount and I'm nearly certain he has said as much.

 

Ben

[value-is-what-you-get]

"And incidentally, the one thing that's very important now is banks--and this may come as a surprise to you. Banking has never been better in one sense. I mean, the banks are getting their money very cheaply, deposits are coming in, spreads have never been wider, all the new business they're doing is terrific. They will earn their way out of it, in most cases, overwhelming number of cases. And they should not be spooked by the idea they're going to have to issue tons of stock at some very low price under the circumstances where the very actions of--that that may be coming keep pushing down the price. So that's spooking, you know, people in the banking business. But the banks can earn their way out of this. I mean, the average cost of funds for Wells Fargo, for example, the fourth quarter last year, was 1.44 percent. I can earn money with money at 1.44 percent. I mean, it's cheap. It's abundant and the spreads are terrific." - Warren Buffett  March 9, 2009

 

 

[SharperDingaan]

 

Very simplistic, but think from the ground up:

 

- If you started a new bank today, issued only long term certificates & took in only deposits, you would probably enjoy the best environment that we've had in at least the last 50 yrs or so. Every day, bread & butter banking, with very little real risk.

 

- If you were an existing state but marginal bank, you'd probably be spending a good part of your day dealing with underwater loans with little prospect of change for at least the next 12-24 months. It would be hard slogging for a marginal return, & loan securitization hangovers would make your life very difficult. For many, the right decision should really be whether they voluntarily wind up & start anew.

 

- Conventional thinking is that if you are a money-center bank - wind-up isn't really an option, as you'd

effectively have to buy someone else to get market share. But .. realistically this is only true if the 'new' world looks just like the 'old' one, & the bank doesn't get broken up into parts..... & there is a lot of executive & regulatory investment in the 'old world' regime.

 

Different voices speaking to different levels of banking.

 

SD