Wednesday, December 28, 2005

Warren Buffett on Competitive advantage and business model in banking

- Banking is a good business - many banks earn high returns on tangible equity

- "Charlie and I have been surprised at how much profitability banks have, given that it seems like a commodity business."

- Underestimated how sticky customers are and how unaware they are of fees banks charge them

- WFC - $4.00 per share after full taxes on $15 of tangible equity

- If you have a well run bank, you don't need to be the #1 bank in an area

- Bank ROA is not highly correlated to size

- You may have to pay 3x tangible equity to buy a bank

- Only problem with banks is that sometimes they get crazy and do dumb things...'91 was a good example

- If a bank doesn't do dumb things on the asset side, it will make good money

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