Questions About Banks

By Noël Zia Lee (Flickr: Big Pink) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

There’s no answers or explanations, just a few questions that I haven’t finished thinking through:

  • What is it about Wells Fargo that Warren Buffett and Charlie Munger love so much about than US Bancorp? (Wells Fargo have much bigger position sizes than US Bancorp for both their portfolios (As of Jul 6th 2016, Warren Buffett – 18.04% Wells Fargo vs 2.69% US Bancorp; Charlie Munger – 67.4% Wells Fargo vs 4.98% US Bancorp) yet US Bancorp beats Wells Fargo in ROA, ROE, and Efficiency Ratio)? Isn’t US Bancorp a better run bank in general? Or is purely a valuation matter?
  • What does Warren Buffett and Charlie Munger’s position sizing in respective portfolios of US Bancorp reveal / hint to anyone’s appropriate position sizing for US Bancorp in their portfolio (eg. Is it a 90% position size stock? Is it a 33% position size stock? Or is it just one of many stocks like 5-10% position size?)
  • How do I know if a bank I now own stocks on is no longer as prudent as it should be? At what moment do you go “screw it, I’m leaving this stock”? (Wells Fargo is now entering Investment Banking, an area that’s fraught with much bigger dangers than just sticking to simple retail banking)
  • How strong are the moats of Canadian and Australian Big Banks? The Big 6 Banks in Canada have similar cost efficiency ratio (57.9%) as well run US banks like Wells Fargo (52.6%) and US Bancorp (52.1%), while the Big 4 Banks in Australia have an even more ridiculous low cost efficiency ratio of 45.9%. The questions I have in mind are:
    • Why are these banks so cost efficient on aggregate? (US Banks’ cost efficiency on aggregate is 70.8%…)
    • What’s the differentiation between the Big 6 in Canada and Big 4 in Australia? (I see not much)
    • How are the Big 6 and Big 4 able to keep a highly profitable oligopoly when differentiation is low between the banks? (What’s stopping them from one day going nuts and price war the crap out of each other?)
    • How well would the Big 6 and Big 4 fare if politicians suddenly changed their minds and banned all regulations that currently favor such domestic bank protectionism?
    • Is a moat that has a significant chunk of it upheld just because of favorable regulations really a moat? Or does the catastrophe risk inherent in it make it a great pillar to have but not something to entirely rely on?

[Disclosure]

I currently own US Bancorp (USB) stocks, and intend to keep increasing my position size of USB.

[Disclaimer]

Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)

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