Swiss_Buffett

On Ben Graham, Bank Stocks, Jason Zweig and Tom Brown

While the original article by Zweig and this rebuttal makes a good read, it is speculation only and the impossible attempt to read the mind of a guy who died quite a few years ago. The practical relevance of these articles are therefore naught. Nobody except Graham himself would know what he was doing today.

Financials: How - And When - We Reached the Bottom

Charlie Stromeyer Jr, you asked: Do you agree with some analyst whose name I don't remember who said that in terms of business recovering that first the trust banks will recover then the commercial banks and then last the investment banks?

I would agree trust banks recovering first appears very likely. I doubt they are at risk at all. Sure their base for earning their fees will get smaller, but essentially they do not take own risks, only handle other parties investments/portfolio. I think State Street Boston is a good example of such a bank.

If commercial banks will recover more quickly than a Merrill or Lehman? I would not want to wager a bet on either side. I'd say it's very much a case by case affair. Certainly Merrill and others like Bears (gone) and Lehman (almost), Drexel (gone), Salomon (gone), Kidder (gone), Barings (gone) have the rare talent to blow themselves up every couple of years with one new financial trick/fad or another. The only one smarter than the rest appears to be Goldman, but the final verdict is not out yet on GS. As a group the investment bankers appear to have virtually no risk management in place and are a greedy bunch altogether without much interest other than enriching themselves as quickly as possible. This works to their benefit as long as the particular fad in question works well (usually some 5 years), then when it's reckoning time they will go like: OK, tough luck. We didn't see that coming etc etc blah blah.... For the bigger ones (MER, LEH) they can fall back on the Fed or some other friendly Wall Street arrangement (Chase buying JP Morgan and now Bears, Citi swallowing Salomon). The others are gone, with a more or less golden parachute. Rinse and repeat.

All in all I'd say commercial banks operate more conservatively than the investment banks do. BUT their "conservativism" can be very reckless too, as can be seen now with Wachovia and UBS, among others.

What I find interesting is that even community banks and small regional banks and S&L's have subscribed to this lastest round of real estate bust. The principle of "knowing your customer" has been neglected wholeheartedly almost universally at all institutions small or large. Greed, once again, got the better of bank managements all over U.S. but not only in the U.S. I live in Switzerland and are the proud producers of one of the ugliest cases, UBS...

Financials: How - And When - We Reached the Bottom

I believe 07/15 may indeed have been a bottom for the banks, but going out and buying with both hands is very risky still, if not foolhardy. 07/15 may not be THE bottom yet for banks. If there is prolonged economic downturn and recession because of the weak american consumer, it is inevitable that more - a lot more - writedowns await us in the future.

How much has been written down so far and how much is being discounted in the current depressed stock prices of banks? Well, a good chunk for sure. But today we only know so much. Even the best informed and well-intentioned insider may not know the full extent of mess that is still waiting for us out there.

On the other hand there will always be commercial banks around and in business in the US and elsewhere, of course. So it is a no-brainer to make a case for buying them - now or later.

Even assuming Tom is right in calling a bottom here, picking First Horizon as an investment candidate I find rather disturbing. There are certainly better alternatives available, like JPM, BAC and WFC. Sure these are rather dull ideas, but you can be certain that these will survive. A racy pick like First Horizon may very well get you in trouble still. I'd rather play it as safe as possible right now, and that means the biggest are the most likely to come through.