To Our Clients, Colleagues and Friends,
- We went on college tours this past week, and a couple of quick impressions: (1) An overly-big part of your first impression has to do with the personality of the tour guide, (2) all tours sound pretty much the same, (3) you need to resist the temptation to judge a school by the beauty of its campus, and (4) most of the kids seemed very normal, but boy, there are sure some neurotic parents out there. We also learned that the main criteria for giving campus tours is the ability to walk backwards.
- We mentioned martinis last week, so once again, here’s one of our favorite poems. “I like to have a martini, two at the very most. After three I’m under the table. After four I’m under the host.” This was penned by the witty Dorothy Parker.
- Two other Dorothy Parker witticisms: "Kisses may not spread germs, but they certainly lower resistance." And “I hate to spread rumors… but what else can you do with them?”
- With non-bankers looking to buy banks, there’s often some confusion as to charters and regulators. Here’s how it works: (1) Nationally chartered banks are supervised by the Office of the Comptroller of the Currency (OCC). (2) State chartered commercial banks that are members of the Federal Reserve are supervised by the Federal Reserve. (3) State chartered banks that aren’t members of the Fed are supervised by the FDIC and their state banking regulator. (4) State or federally chartered thrifts are supervised by the Office of Thrift Supervision (OTS), (5) State chartered savings banks are supervised by the FDIC, and (6) Bank holding companies are regulated by the Federal Reserve. It seems like a jumble, but it generally works.
- While driving around Southern California looking at colleges, we saw some very depressing real estate. The thing that made the biggest impact were the strip centers where all the store fronts are vacant. We went into one strip center to get an ice cream cone where Baskin-Robbins was the only tenant, with 17 storefronts empty! The landlord hadn’t even put up a For Lease sign in the windows. Why bother?
- We predict that a fair number of banks will get into warehouse lending in the next several quarters. For the banks we’ve advised on how to set this up, the margins and returns are very attractive. Also, the smart banks are realizing that WH lending generates good non-interest bearing deposits. We’ve helped four banks set up warehouse operations so far, and we’re getting a good number of inquiries on a regular basis.
- From a client: “I totally agree that Mortgage Brokers have replaced used car salesmen as the butt of jokes. If you watch the show Hungon HBO, the lead character, a former teacher and now a male prostitute is standing there in an uncomfortable, inexpensive suit, exclaiming ”I feel like a f___ing mortgage broker!” Doesn’t that say it all?
- We read that of the ambassadors Pres. Obama has nominated so far, the minimum amount donated or bundled to his campaign is $3.9 million. Whoa.
- China has been buying land and companies around the globe, many of them for their potential for natural resources. They have now acquired 10,850 square miles of farmland in Africa within the past three years, and that’s about the size of Massachusetts (10,555 square miles).
- When we wrote that the FDIC insurance fund was down to about $10 billion (from a bit over $52 billion a year or so ago), we should point out that separate from their capital, the FDIC has reserved another $30 billion to handle bank failures.
- Countrywide had been OTS regulated but has now been fully integrated into the Bank of America, with their thrift charter fully dissolved. This leaves the OTS without a single thrift with more than $100 billion in assets.
- Here’s from the Round Numbers department: Some 20 years ago, there were about 16,000 banks, and today, there are only 8,000 or so.
- The L.A. Angels beat the Oakland A’s the other day, and when we looked at the box score, 8 of the 9 Angels were batting over .300. Naturally, they beat the A’s.
- One of our favorite bank metrics is the Efficiency Ratio. Even though studies seem to show that it’s non-correlated with ROE, we still think it’s a valuable tool to see how management handles expenses. The ratio is essentially how many pennies the bank spends to generate a dollar of revenue, so a lower number is better. Here are a few banks and their ratios.
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26.5% HSBC No. American |
51.3% Wells Fargo |
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26.6% Westamerica Bank |
52.3% J.P. Morgan Chase |
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43.6% U.S. Bancorp |
54.7% Regions Bank |
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48.6% Bank of America |
56.6% PNC |
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49.3% Citigroup |
58.9% Zions Bank |
- We just saw a list of novels written in the 1920s, and what a list it is: Ulysses, A Passage to India, A Farewell to Arms, The Sun also Rises, Lady Chatterley’s Love, The Sound and the Fury, The Great Gatsby, Arrowsmith, and, perhaps the greatest American novel of all time, An American Tragedy. If it weren’t for this decade and these books, Cliff Notes might never have existed.
- On this day, September 1, 1946, Ayn Rand started writing Atlas Shrugged. If you haven’t read it, you should, and if you have read it, you should give a copy to a college student. After finishing it, you should also read The Jungle by Upton Sinclair so you can understand why individualism needs to be tempered by compassion.
- September 2 is an important day in history. It’s the day WWII officially ended, with Emperor Hirohito signing articles of surrender on the U.S. Missouri. And it’s also the day in 1991 when the U.S. recognized the independence of Latvia , Estonia , and Lithuania . When we were in these three countries, we asked everyone about life under the yolk of Soviet communism. There’s not room here to describe how horrible it was, but ask us someday, and we’ll tell you how 1984’ish it was.
- Ever hear of momentum investing? Instead of analyzing a company’s fundamentals, the momentum investor looks for accelerating earnings. The theory is that whatever has been going on will keep going on a little longer. Isn’t that an interesting idea? Isn’t it kind of true of life as well? Whatever has been going on will probably keeping going on a little longer.
- What are the three coolest rare plays in baseball? The rarest is when someone hits for a natural cycle, a single, double, triple and homerun in that order. It’s only happened 14 times in all of baseball history. The next most rare is the unassisted triple play, which has happened 15 times. Another rare feat is the so-called immaculate inning in which a pitcher strikes out the side on nine pitches. This has happened only 42 times.
- We liked one particular photo from Ted Kennedy’s funeral service. It showed sitting next to each other Bill and Hillary Clinton, George W. Bush and his wife Laura, Barak and Michelle Obama, Joe Biden and his wife, and Jimmy and Roslyn Carter. In almost all countries in almost all of history, leaders of countries typically killed, exiled, or demonized their predecessors. Photos like this one show our national character and political culture at its best. By the way, we read Kennedy’s letter to the Pope and found it quite touching. We’ve attached it to this newsletter.
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