The following quotes are excerpted from an article entitled “Banking With Tisch” first published on October 6, 1986 in James Grant’s Interest Rate Observer. Just some food for thought. A lot of what was said 20 years ago can still be said today.
Thomas J. Tisch gives some advice to bank-stock investors:
First, never buy a bank at twice book. Number two, don’t trust any bank with a superior earnings record. Number three, you’re buying a pig in a poke because assets are inherently unanalyzable. So buy enough comfort and coverage.
On the “winning features” of the banking business:
First off, you can grow as fast as your ingenuity will allow you to. Number two, you never have capital expenditures that far exceed your depreciation. Number three, I’ve never read about a strike against a bank. And number four, the Bank of New York and the Bank of Boston have paid cash dividends every year since you-can-look-it-up. Sow how bad a business can it be?
On the unattractive features of banks:
Then there are the contra rules, [such as the inability to earn exponential rates of return except through recklessness or fraud]. Also, bankers don’t own stock in their own banks. And banks put their customers on their boards of directors.… Another thing: A really smart person says to himself at a certain point—and this is part of the problem of it being so easy to enter the business—that your pricing is set by the stupidest person in the market.
