terrific buffett interview on wfc

[link01]

i've often wondered lately if buffett considered jpm an equal peer of wfc & why he's apparently never bought any stock in dimon's well run bank. the answer according to this article is that web thinks wells is in a class by itself among the big banks, not withstanding all dimon's talk about a fortress balance sheet & a higher tangible equity ratio than wells has. nor the fact that jamie perhaps talks more eloquently (certainly more frequently & in depth) than either stumpf or kovacevich do:

 

"How is Wells differentiated from the banks you own and the ones you don't?

 

Wells just has a whole different attitude. That's why Kovacevich calls them retail stores. He doesn't even like the word banking. I mean, he is looking to have a maximum enduring relationship with many, many millions of people. Tens of millions. And at the base of it involves getting money in very cheap. When you do that that's a helluva start in the business. The difference between getting your money at 1-1/2 % and 2-1/2% on a trillion-dollar asset base is $10 billion a year. It's hard to overemphasize that. He thinks more like Sam Walton than he thinks like J.P. Morgan. I'm talking about the individual there. He's a retailer. He's not trying to influence Washington or be the most important guy on the scene or anything like that."

 

some good if simple stuff here....classic web!

 

http://money.cnn.com/2009/04/19/news/companies/lashinsky_buffett.fortune/index.htm

 

 

 

 

[basl1]

that is a very good article.

What are the earnings on assets for WFC, MTB, USB, BN, TD, RY?

Barry

[Matson125]

Below is a a link about TD and Ed Clark

 

http://www.bankinvestmentconsultant.com/news/TD-Branching-2661219-1.html

 

He seems to have a good handle on the situaton at hand and is looking to expand in the U.S. amid the turmoil.

[arbitragr]

Well I'll give credit to Dimon for building a fortress balance sheet before the crunch happened. Much like Prem did with CDS's in the sub prime/housing sector

[Mandeep]

What is a "fortress" balance sheet? I'm assuming one that's protected against any losses.

Don't you think JPM is a lot of marketing hype? It's all I see on CNBC.

I mean don't you think they had more than just a few problems with Bear Strens and Wamu. Come on now, guys.

Where are those losses?

 

In my mind, they should be in the same boat as Bank of America, but for some reason the media loves them.

This article solved Buffett's mystery of of the BofA shares as well. It was a Lou Simpson purchase.

 

 

 

[arbitragr]

What is a "fortress" balance sheet? I'm assuming one that's protected against any losses.

 

Their tier 1 ratios were highest among the big banks prior to the crunch.

[snailslug]

It's really interesting to hear straight up how buffett thinks about banks.  Contrast to, for example, Roubini (who I have a lot of respect for btw), who says all the banks are insolvent, nationalize them all.  It's interesting that through the buffett lens, if you mark to market everything on wells book, it could technically be mark-to-market insolvent (which it's not, but just hypothetically), but according to buffett, that makes no difference as long as the bank can earn its way out of the hole.

 

Such a simple yet different way to look at things.  Buffett never ceases to amaze me.

[Crip1]

"It really disappointed me when they became a bank holding company.  Seems like crony capitalism and I wish Buffett had been more vocal about that change."

 

John, can you help me to understand your concerns a little? I am not agreeing or disagreeing, just want to understand, that's all.

 

-Crip

[woodstove]

Two things...

 

1- Thanks for that Ed Clark / TD link.  Good article, and looks like good news source as well.

 

2- Something that really struck me, and has remained long term investing guidance.

Buffett said later, of the AXP purchase at the time of the salad oil scandal, he looked at

the earning power, and considered the recent losses as if they had been a big dividend

payout.  That is, if the company had paid a big dividend, would he have stayed away?

 

So for WFC (incl Wachovia), suppose a somewhat similar outlook?  Losses are "dividend"

paid out to the recipients of the uncollectable loans.  Does not affect earning power

as long as payout does not diminish the capital needed for generating earnings.

 

I'm not a bank investor, prefer industrials that I can pretend to understand a bit.

But very interesting discussion and resource.  Appreciate the expertise of you-all.

[basl1]

where can one find earnings on assets?

???

[ExpectedValue]

John, I think that's a weak criticism.

 

It seems logical that the Fed intended to keep all credit card companies functioning, as they play a huge role in the American economy since so many consumers use them for purchases.

 

Discover Financial and Capital One also received TARP money, no need to single out AmEx in your crticism. In addition, companies like Visa and MasterCard depend on banks for their cards to work and those banks received TARP money as well.

[ExpectedValue]

Can you then please explain what industry doesn't play a huge role in our economy under this new definition of "huge role?" That's just a ridiculous metric.  It's being applied to everyone. That's the point.  Explain to me why consumers *must* be able to use a card with the name "American Express" on it.  WHY? What would happen to the US? I don't want some vague "it's a huge role."  Buggy-makers played a huge role.  And candle-makers.  So do/did certain airlines.  So did Texaco.  So did Enron.  Enron was a giant compared to AXP.

 

John, your hyperbolic examples continue to undermine your argument here. Credit cards are instrumental to the flow of commerce. If they were to stop working you would see massive declines in spending and the flow of commerce would be severely hindered for the sheer fact that most consumers don't have the necessary cash on hand to make their purchases. That's why every credit card received TARP money. The only reason companies like Visa or Mastercard did not is due to the fact that they're largely payment processors -- the lending risk is transferred to the banks that issue Visa or Mastercards. Coincidentally, those banks received TARP money.

 

Supplying TARP money to Capital One, Discover, AmEx, and the rest of the banks was one way to ensure that credit would continue to flow to the American consumer.

 

[bookie71]

Right on John.  Being a dinosaur, I can remember when 18% was thought to be an outrageous interest rate.  Now they charge 29+ %, change their terms in midstream, send bill out at different times , etc.

 

[Hoodlum]

And now the lawsuits begin.

 

California sues Wells Fargo for $1.5 billion

[ExpectedValue]

And your vague responses undermine yours.  The institution of instant, personal credit (the credit card) wouldn't have ceased to exist.  That's poppy cock.  You're not explaining in any tangible way why taxpayer subsidization was a system necessity other than giving a general statement regarding reasons credit cards exist.

 

If AXP, COF, or Discover couldn't develop a business model viable enough to withstand the downturn -- tough cookies.  Credit-worthy individuals would still have had access to credit because this form of credit is extremely profitable for any institution willing to extend that credit.  The world wouldn't have stopped turning; we wouldn't go back to a barter system.

 

Instead, we now have institutions living off of taxpayer money, borrowing money from the taxpayer coffers at obscenely low rates and increasing the borrowing costs of the very taxpayers they are borrowing from.  Oh, and they have the gall to fight any legislation that curbs their predatory behavior:

 

The banks have made it difficult for Congressional Democrats and the White House to give stretched homeowners a stronger hand in negotiating lower monthly payments on mortgages and to prevent credit card companies from imposing higher fees and interest rates.

 

Having won some early skirmishes by teaming with Republican allies, the banks now appear to have the upper hand and may wind up killing — or at least substantially diluting — both pro-consumer measures.

 

http://www.nytimes.com/2009/04/22/business/22consumer.html

 

AXP gets government protection and then fights any government protection for consumers.  Ethics, Schmethics, right?  There is a famous quote some investor once said about falling tides and naked swimmers.  Except in this case, AXP was caught swimming naked, then stole the bathing suit from taxpayers and then kicked sand in their faces when they protested.  And then we are told it has to be this way ... because they are just so important and special.

 

On your first point, to me if you're going to take that perspective then you should also take the perspective that no bank should have received TARP money. But credit card companies would have likely pose a systemic risk. Any kind of threat to the credit card system could cause an issue. You can argue that it isn't, but regulators clearly did not believe that to be true so it's their judgement you have to trust on that end.

 

On your second point, I completely agree but I also think that the government has the right to influence banks too because they took the TARP money as well (and have not paid it back yet).