Just heard an interview with Warren Buffett. He spoke about Wells Fargo and why he liked the company. Repeatedly, he said that Wells Fargo has the lowest cost of capital of any major bank in the USA. That's how he looks at banks in general. I haven't looked up the numbers yet. But it's an interesting perspective on how to analyze banks.
One of the big things I struggle with was well... how do you know a bank is good? It's hard to analyze the quality of their loans. You really don't know about their loan default rates and how that will hold up. What we do know how to calculate is that their cost of capital. Normally that is stable, especially if the capital comes from depositors.
Monday, May 4, 2009
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