What do you think of the banking business model? Source: BRK Annual Meeting 2002, 2003, 2005 and Vanderbilt notes

  • “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
  • 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

If you can just stay away from following the fads and making bad loans, has been a remarkably good business.

Financial companies are more difficult to analyze than other companies. They can report whatever earnings they want – it’s an easy game to play. For banks, earnings depend on loans and the reserves set aside. It’s easy to change and manipulate the reserves.

[CM: Where you have complexity, by nature you can have fraud and mistakes. This will always be true of financial companies; if you want accurate numbers from financial companies, you’re in the wrong world.]


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