Don-n-ABQ

Time for the U.S. Economy to Reindustrialize

Who is "Mr. Armstrong"?


On Nov 15 10:32 AM Mrudula Shah wrote:

> A very good, appropriate and timely thought expressed by Mr. Armstrong,
> which with a bit more sophistication can be good enough to be published
> in magazines like Forbes and The Economist. This is what we need
> to do. Exactly how will be the next step to think and implement.

Chart of the Week: Four 'Good' Banks

CORRECTION:

The really good banks had FOUR things; good technology, good management in the lobby, good management in the board room, and good analysis of the other FOUR.

Sorry 'bout that.

"Let's all go out to the lobby,.....


...and buy ourselves a good small bank"

Chart of the Week: Four 'Good' Banks

I ranted on about banks in another article:

seekingalpha.com/artic...

So, I'll only copy a part of that here:

Why don't we take the financial institutions like (or what is left of them):
AIG
Bear Stearns
CitiGroup
Countrywide Financial
Fannie Mae
Freddie Mac
Lehman Brothers
Merrill Lynch
Wachovia
Washington Mutual
etc.

And, take the worst portion (20%?, 30%?, 40%?) of what is left and nationalize that into 2009 Federal Assets Bank.

Then with the rest give it the bankers who have actually done a good job. Banks like:
1) United Ban of Alabama
2) First Financial (Indiana)
3) Citizens Holdings Co.
4) Arrow Financial
5) First of Long Island
6) Republic Bancorp
7) First Financial Bankshares
8) Glacier Bancorp
9) Financial Group
10) Bank of Hawaii Corp.

We give the good bankers the good deposits and good loans, and reward them for not buying into this derivative credit default swap leverage game.

The 2009 Federal Assets Bank is run by a committee of the good bankers for a period of 10 years, in 2019, and if anything is left it is sold in an IPO and the proceeds go to pay for the bailout.

BUT, I WILL ADD THIS:

Start focusing on the GOOD banks and GOOD bankers for now. Then later go back and punish the bad ones.

Lets go back to 1970 shall we: A really good bank could only get so big. For one thing they couldn't cross state lines. So, to be a really good bank they had superior customer service, and because they were restricted geographically they had superior balance sheets. They were also hampered by the basic law of talent, "only 10% of any one group are really great managers." Next they were physically hampered because a good manger could only get so much done in a day.

The game changer: Technology. Technology allowed a good manager to manage more assets and also manage assets remotely. But, they still had their superior customer service in the lobby.

By 1990 the management at banks like NationsBank, Wells Fargo, Bank of America, Washington Mutual (a thrift), Bank of the West, US Bancorp, etc. thought that they could replicate what good banks were doing in a smaller geographic area all over the country.

Problem was as they bought out the good managers in each state, the good managers eventually "retired" and took the buyout money and started another small bank, or bought into one, or really did retire.

A good group of managers back at corporate headquarters can only manage so many people, and if half of the original 10% of the talent matrix in each state quit (or heaven forbid, all 10%), then the game changed.

The corporate office only had one option left, technology. They shifted good banking from the lobby to the top of towers where they sifted through computer screens looking for an edge. The really good banks had three things; good technology, good management in the lobby, good management in the board room, and good analysis of the other three.

But, now the ability to have good managers in the lobby was gone. (One leg of a four legged stool.) The good managers that were left in the ivory towers knew that they were good bankers back in the day. But, they were so full of themselves and their self confidence, that the didn't realized that the game had changed and one key component (maybe the one most crucial) was now gone: The GOOD managers in the local lobbies.

This has happened with a lot of consolidation roll ups. Know the story of Miller Industries (MLR) for one example? The investment bankers find a good management team, and come calling on you. They fill your head with what 'geniuses you guys are.' They sing a song about how you have done so much, and you can bottle that and roll it out across the land.

They were right of course, you were a good banker. But they were also trying to make money off of merger and acquisition fees, and/or IPO fees, or the game of growing earnings geographically, or the game of growing earnings by consolidation. But, those things are short term ideas. They only last so long. You were great an managing a 50 branch bank in one state. But, they wanted you to manage 500, or 5000 branches.

But after the buyouts the other good bankers walked away and now you had to play narrower and narrower spreads on a larger and larger pile of cash. The Wal-Mart approach: VOLUME fixes everything. Or, the AT&T business model, you only make a dime on every transaction, but you have a huge amount of transactions. Problem is a $500,000 loan is not a t-shirt made in China nor is it a phone call. Applying the volume matrix to banking ignores the risk to the individual pieces of the pie. Do you think Wal-Mart would work if they financed that T-shirt for 30-years?

So now the good "lobbyeers" have gone, their aren't enough good managers to watch the berries in the pie. The pie is so large that nobody can watch it all. Nor do they notice that some of the berries put in the pie had turned and were spoiled. So you had rotten berries next to the good ones.

I have moved twice in the last 10-years. How I picked my bank each time? I picked the smallest bank in that market that was publicly traded. 1) Smallest for the "good lobby" model. 2) The extra scrutiny that being public brought. 3) The ability for me to scrutinize their quarterly's myself. 4) I also picked a bank that was primarily a bank focused on small businesses, but also had consumer accounts. And, 5) Easily invest in them if I chose to do so.

Bottom line: Not enough good bankers to manage the lobby of the local branches. Focus on the small banks. Superior M&A, IPO, LBO, etc., talents should not be co-mingled with retail outlets nationwide. This would be like your local family physician being bought out by a group of top flight laboratory researchers.

I'll leave you with a jingle:

"Let's all go out to the lobby,....."

Chart of the Week: Four 'Good' Banks

Because, enough people have not complained loud enough to their congressmen. Of course, the biggest campaign contributions talk loudest, but all votes talk.

If 50% of voters wrote a letter to their congresspersons, saying throw some of these bums in jail, then, maybe, just maybe something would happen. These bankers like:

Angelo Mozilo
Joe Cassano
Dick Fuld
Frank Raines
Marion and Herb Sandler
Stan O'Neal
Lew Ranieri
Fred Goodwin
Sandy Weill
Jimmy Cayne
Kerry Killinger
Chuck Prince
Franklin Raines

Gave some of those millions that they took out of their companies to politicians and hosted big fundraisers. So far, their money is talking the loudest.

On Mar 08 05:31 PM HBWOW wrote:

> WHY are we not seeing some of these banks'top "management"
> hitting the street with empty pockets AND replacement with proven
> winners in business. A good CEO change could do wonders for the
> stockholders, customers, and the government which then should improve
> morale, public confidence, and maybe even stock pricing.
>
> THIS SUGGESTION IS REALLY TOO OBVIOUS TO BE CONSIDERED BY THE "POWERS
> TO BE".

Bank of America: A Risky Bet That May Be Worth It - Barron's

More on BION BARNETT:

''It has never failed at any time to take care of the legitimate requirements of its customers, nor at any time failed to pay cash on demand to any and every depositor,'' said Bion Barnett in 1927, celebrating the bank's 50th anniversary.

He was 70 years old by then but still had another 31 years to go. In his 80s he shot his age in a round of golf, which to golfers is a major achievement.

At 90, he said: ''I have decided to establish a rule of the bank to the effect that no officer or employee who reaches the age of 89 need return to work after the noon lunch hour.''

He showed up for work until he was 93. He died in 1958 at the age of 101.

As one of the biggest and strongest banks in Florida in the 1930s, Bion Barnett's bank helped keep the state's banking system operating after other banks started failing during the Depression. Communities suddenly without banks came to Barnett asking for help.
----------------------...
Barker-Benfield, Simon
The Florida Times-Union
October 8, 1998


On Mar 09 12:17 AM Don-n-ABQ wrote:

> You think Jacqueline Doherty or Ken Lewis will loan me $350.00 so
> I can buy 100 shares?
>
> Amadeo Giannini and Bion Barnett are both rolling over in their graves.

Bank of America: A Risky Bet That May Be Worth It - Barron's

You think Jacqueline Doherty or Ken Lewis will loan me $350.00 so I can buy 100 shares?

Amadeo Giannini and Bion Barnett are both rolling over in their graves.