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Are big banks value traps ?

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Spekulatius:
I had some thoughts on big banks (and small local ones) after selling my WFC position. My near term concern on WFC is NIM compression due to interest rates, but another thought that occurred to me, partly due to trains of thoughts from other boards here and on Twitter is that the big banks may be the department store equivalent of the financial industry.

With that, I mean a company that does a bit of everything, but nothing particularly well. This applies to many business lines like mortgages (in about 80% of the cases, one is better off with a good broker), payments (a lot tech companies here start to dis-mediate and Visa/ MC go after b2b payments), wealth management/ Broker (banks offer discounted trades as a bundle, but who cares when trades at a brokerage firm are free), Credit cards  and possible other things.

So it seems to me that big banks will be losing market share to innovators and smaller banks may be worse off, since they donít have IT heft. I am no sure how long takes, but it seems like one can see that over time nimble competitors take more and more share away from what once considered core bank business.

I would welcome thoughts here. I have personally decided to ditch my Wells Fargo brokerage and checking accounts (I got a package with 100 free trades annually) that I had since 2006 and use Schwab instead for cash management/checking and brokerage accounts.

TwoCitiesCapital:
I don't see a natural replacement for them yet, so m not terribly concerned. They'll just roll-up the innovators in the field and then the tech will become commodities over time.

Banks are hard to supplant because of the network effects. Where else do millions of borrowers and savers come together for mutual benefit and limited effort?

LC:
Also, who has billions/trillions on hand to lend out to massive companies and massive populations?

And, who has the institutional know-how to effectively risk manage that entire operation?

The barriers to entry to banking are immense. This is why we haven't seen a new big bank in a looooong time.

no_free_lunch:

--- Quote from: LC on October 04, 2019, 06:32:14 PM ---Also, who has billions/trillions on hand to lend out to massive companies and massive populations?

And, who has the institutional know-how to effectively risk manage that entire operation?

The barriers to entry to banking are immense. This is why we haven't seen a new big bank in a looooong time.

--- End quote ---

I have large positions in banks so I am really arguing with myself here.

Who has billions in cash?  Apple, Google, Facebook.  Even without taking in deposits they have huge reserves. 

Who has institution mal knowledge?  Not them but they probably know more about us than our banks do.  Maybe they could carve out niches by building internal credit models and expand from there.

I think big tech will come for banks but I think it will take time.  You can see it happening with things like Apple pay and maybe libra.  You definitely have to be vigilant with the banks.

sleepydragon:
Banks, prostitutes, and weapon making have existed for hundreds of years.
Not going away

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