Maybe I shouldn’t admit this… but here goes.
I hate banks.
I don’t mean I hate them as an investment; you’ve seen that I always have banks in the portfolio. In fact, I invest in them for the very reason I hate them.
Let me explain.
I bet most of you have had this happen when checking your monthly statement (if you don’t check yours, I suggest you do). Back when I was a student, I noticed a fee on my FREE student account. It was only $4.95, but I was so pissed that I called the bank. After a long wait and a maze of phone menus, I reached an agent who explained the charge came from some fine print. That was CIBC. A year later, the same thing happened with TD, and I still get those surprises every now and then.
There’s a reason people don’t like banks. Only 28% of Americans have a great deal or quite a lot of confidence in them.
Then came the 2008 financial crisis, caused partly by banks selling products to people who didn’t qualify for them. They didn’t even get a slap on the wrist. They got government help and paid themselves ridiculous bonuses.
We’ve seen this happen several times, and I bet we’ll see it again.
The reason they get away with it is simple… they’re too big to fail.
Four weeks ago I made a bank my September pick. The argument was that Mr. Market was using the wrong discount rate, and that the company’s own capital structure showed it.
This week the bank took three hits in two days: a regulatory penalty, a soft quarter and another leg up in bond yields. The stock had a rough two days. This morning I bought more.
Behind the paywall:
What the penalty is and what it isn’t, tested against eleven bank enforcement cases and what each one did to the share price over a day, a month and a year
The Q3 scorecard: which pillars held and which one I’m marking down
How a 40bp move in the 10-year flows into fair value, and what the company’s own preferreds say about it
The new fair value, what today’s price implies, and the position change I made this morning
Table of Contents
Mr. Market handed me a cheaper entry yesterday and I took it.





