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Buffett & USB


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Warren and Charlie are bullish on 2 banks WFC and USB.  It seems that every time Warren speaks about banks he mentions USB and WFC as his two favourites.  When he provides exmaple or dives into detail he alwats mentions WFC and thier advantages (cost of capital being the lowest, great management, being #1 in deposits, their lending practices being very healthy etc.)  He doesn't seem to mention USB and gives specific exmaples about them,like he does with Wells.  Besides lending money in a responsible manner, which I feel would be the one of the largest factors he would invest in USB, has anyone been able to pinpoint any competitive advantage that USB has that Warren and Charlie would be so bullish on them?






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USB (like WFC) has a business model that emphasizes non-interest income (WFC through cross-selling to their bank customers stuff like insurance and USB through its payments business which generates transaction income - eg trusts, debit cards, etc).  So, in addition to strong deposit gathering and conservative credit underwriting, USB generates a significant amount of non-lending related income.  In USB's case, they are growing this business rapidly and it creates a positive cycle as they can afford to be more choosy on their lending (which further reduces loan losses and gives them better lending returns as seen in the recent TARP results). 


This business model tends to give USB a higher ROA and ROE in comparison to other banks and makes them a bit less reliant on pure lending.  There's only a few non-investment-bank banks that do this.  I would recommend you examine and compare a few of the big regional "pure" banks' income statements and try to see the difference (eg compare USB vs MTB, BBT, or PNC).


Hope this helps.



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Let's me state the obvious.

WFC is quite a bit bigger bank, and it made one significant acquisition - WB and took a huge writedown.


If they had know the Fed is going to do the stress test they probably won't do the write-down that early which hurt their ratio...


USB made only smaller acquisitions from time to time - so it's more predictable.


I actually like USB better here because they can pay off the TARP if they wanted to sooner.

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