Maxfield on Banks
@MaxfieldOnBanks
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king of bank twitter, preeminent storyteller in banking, host of elite banking symposium, professor of the baddest ass banking class, making banking cool again
Joined October 2018
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for those of you who don’t know us…
the guy on the left promotes the most conservative banking philosophy in america
the guy on the right is a soon-to-be superstar videographer
we’ve come together to tell the story of banking in new and original ways
@jabble_
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silicon valley bank screwed the pooch on managing interest rate risk
everyone knows that
but did any banks do it well?
oh yes, my friends...
one did it very well
m&t bank
this is from rene jones' 2021 annual letter...
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Here's a list of 50 books...
every one of them is a page-turner.
[thread]
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for every bank that fails today, there are likely hundreds, if not thousands, of banks that failed in the past for the same reasons
this thread breaks down the different ways banks have failed over the past 200 years
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Wanna analyze a bank like a pro?
Here are ten things you'll need to know…
[thread]
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The longer you study a subject, the closer you get to the core laws that govern it.
Here are 10 laws that govern banking, deduced from a decade of studying the industry...
[thread]
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and here's rene's latest letter, released earlier this week...
the dude nailed it
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fast forward one year...
here's what happens to the common equity tier one capital ratio among m&t bank and its peers when you factor in unrealized losses on securities due to rising rates...
(note silicon valley bank at the very bottom)
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dear friends
this week i'm gonna reveal the fruits of my labors over the past 13 months
if you're a banker, or care about the industry, it will be worth your time to tune in
the volume of material is vast
by the end, you'll understand banking better than ever before
john
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The opportunity to be with my father in these final days is a gift for which I’ll always be grateful.
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hello banking twitter...
have you ever wanted to know absolutely everything about banking...
to the three of you who whispered 'yes'...
...a curated list of key resources...
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My father passed yesterday at 12:35pm.
My brother, mother and I were at his side all morning.
The death rattle began at 11:30am or so.
At noon, my brother administered a double dose of morphine and removed the nasal cannula.
He lasted 30 mins until, around 12:30, my older
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If I had to distill 12 yrs of rigorous study into one tweet, here’s what I’d say…
The primary driver of long-term returns in banking isn’t a trackable metric; it is instead the innate or acquired immunity to greed and avarice on the part of bank CEOs.
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hi folks
(esp newsletter subscribers)
apologies i've been quiet of late
am in colorado hanging with my fam
my father, who i'll share more about later, is in his final days and for the first time in my life i've deprioritized work for a bit
be back in the saddle soon
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Hello friends,
I’ve started a substack to share my best work.
I’d love if you all signed up.
You have my word that it will be excellent.
Please retweet and spread the word.
- John
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"Don't do anything stupid. And don't waste money. Let everybody else waste money and do stupid things; then we'll buy them."
- Jamie Dimon
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silicon valley bank experienced a bank run today
we don't know if it will fail or not
but here are some things we do know...
[thread]
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Taxonomy of bank failure
(made this a couple years ago and came across it again today)
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a single decision by the finance folks at silicon valley bank triggered the whole banking panic of 2023
absent that decision, there wouldn't have been a panic.
the decision is isolated and described below
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the institutional imperative by the o.g. of wholesale banking...
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John Reed explaining Jamie Dimon's firing from Citigroup on November 1, 1998:
"The right decision as we got to it did involve his leaving the firm. I think we feel, and I believe Jamie feels, we made the right decision to take this company forward."
Jamie Dimon:
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5. Credit quality is a myth until it’s a reality.
Washington Mutual’s nonperforming assets as a % of all assets:
1998: 0.73%
1999: 0.55%
2000: 0.53%
2001: 0.93%
2002: 0.97%
2003: 0.70%
2004: 0.58%
2005: 0.57%
2006: 0.80%
2007: 2.17%
2Q08: 6.62%
4Q08: Failed
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ATTENTION BANKING TWITTER!!!
I'm curating a library of banking books for a bank — largely replicating my own library of 200 books, give or take.
Does anybody know any banking books that are off the beaten path that I may not know about?
[Please retweet]
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Not someone who posts personal stuff on here, but I’ve got a ten-year-old son who is conquering his stutter and cultivating serious football skills. Will make him so happy that I posted a few of his videos on here — his twin brother is the videographer.
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10. The hardest part of banking is the need to balance opposing forces.
Efficiency vs. employee morale
Revenue growth vs. risk management
Short-term performance vs. long-term solvency
END/
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4. The crux of banking is watching what others are doing and then not doing it yourself.
Warren Buffett calls this the institutional imperative: “the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so.”
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square this circle...
there have been 18k bank failures over the past 200 yrs
yet there are just a dozen or so reasons banks fail...
for every bank that fails today, then, there could be 1k or more that failed in the past for the same reason...
some examples...
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9. The prototype of a great banker rarely matches the stereotype of a great leader.
While the common stereotype of great leaders is aggressive, action-oriented and charismatic, the best bankers tend to be patient, cerebral and reserved.
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Ten things about me
90 percent of my social life is spent with Afghans (my wife’s family)
A scene from a typical weeknight dinner:
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Dear Bank Twitter,
I’m looking for data on earnings and assets for individual banks going back, w/out interruption, to each bank’s founding.
I wanna study permanence — how values embed in DNA and shine thru in data.
Anybody have this for their bank?
Pls retweet.
John
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never seen anything like first republic bank's first-quarter earnings
loses $100b in deposits (partially offset by $30b from big banks)
then backfills with short-term financing and FHLB borrowings
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i've worked the phone today on $sivb and will be posting something soon...
in the meantime, here's a screenshot from a friend who can't access her company's account at silicon valley
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I wanna share a little bit about how I do my job.
Not because I think I have all the answers. Instead because it’s unique and maybe even interesting.
My overarching philosophy is that to understand an institution, you must understand the individuals who run it.
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bank twitter,
i came across a bank recently with solid performance and wanted to share because it teaches an important lesson about bank analysis...
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am writing about this in the upcoming newsletter, which publishes tomorrow...
sign up here:
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95% of bank CEOs at the top of the cycle: “we’re experiencing historically low losses in our loan books”
95% of loan books at the top of the cycle:
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THREAD: Jamie Dimon’s 2019 annual letter
Dimon’s latest letter to $JPM shareholders is 50 pages long.
If you want to read it, here it is:
But if you who don’t have time to read it, here are my takeaways.
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An interesting exercise…
Rank every company in an industry by all-time total shareholder return ─ i.e., the total value each has created since its IPO.
That's how you discover the best of the best.
If you do this with banks, here’s the top 10…
(DM me for the top 100.)
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It's easy to talk about doing the right thing. But here’s a remarkable story about a CEO who actually did.
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when signature bank and silicon valley bank failed...
their tier one common capital ratios comfortably exceeded the most stringent regulatory standards
capital isn't king; it's court jester
confidence is king
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We could learn 100x more on this platform if we stopped trying to make ourselves look smarter than everyone else, and instead focused on making everyone else smarter than us.
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heads up that there's an account impersonating me...
if it gains a large following, i'll start impersonating it, impersonating me
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7. Profitability
A bank that produces a 14% return on equity (~1.4% return on assets) every year compounds value faster than one that produces a 24% ROE some years and 4% the rest even if the average is the same.
(This is known as variance drain.)
The key is consistency.
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found a banking unicorn…
made money every year for 100+ years (since opening in 1890)
took months, multiple employees at the bank, and two folks at the occ to confirm, but they did this week
guess right and i’ll send u what its ceo got
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6. Leverage is the friend of a good bank, enemy of the mediocre.
Most banks are leveraged by a factor of 10, enabling them to compound value, but leaving little margin for mistakes.
“And mistakes, have been the rule rather than the exception at many major banks," says Buffett.
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wrote my dad's obit
now back to banking, friends
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this multi-bank series illustrates the most common sequences of events that have led to upwards of 20,000 bank failures over the past 230 years...
this bank at issue here is ANB Financial, one of the earliest failures in the financial crisis...
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THE TEN COMMANDMENTS OF BANKING
there are rules and there are commandments...
violate these at your own risk
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1. Success in banking is foremost about winning a war of attrition.
More than 17,300 banks have failed since the birth of the modern American banking industry in the Civil War.
That’s over three times the number of banks in business today.
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1/ Once in a while, you happen upon a really interesting story...
Here's one of my favorites.
It's about a brilliantly executed transformation of one of this country's biggest companies that virtually no one noticed...
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friends
starting today, i'll share the most interest insights i gleaned over the past year, through which i immersed myself in a comprehensive review of banking
many of these, like this first one, contradict the conventional narrative about how banking works
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7. Efficiency is more about revenue than expenses.
“Every bank is two parts revenue and one part expenses,” former
@usbank
CEO Richard Davis once explained. “So if you want to improve efficiency, you’ll get twice as much bang for your buck by increasing revenue.”
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here are some highlights from the banking symposium i hosted three weeks ago...
every speaker coulda been a keynote at most other events
was really good
(when listening to the end — about liquidity — this was three days before $sivb went down)
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PSA: BANK TWITTER
if your public library offers access to Mergent Online, you gotta check it out
it offers income statement and balance sheet data for most banks going back to the mid-1980s
a ton of other stuff, too
and it's free
***get your f'ing library card***
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2. Consistency of earnings matters more than amplitude.
@First_Financial
has been the highest valued regional bank for six years in a row, but the most profitable for only two.
The key is consistency. Its earnings have grown every year since '86, including in the '08 crisis.
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8. All roads lead to skin in the game.
One reason
@MandT_Bank
has been so successful, its CEO Rene Jones once explained, “is that we could get 60% of our shareholders seated around the coffee table in my predecessor’s office.”
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folks -- i'm not at liberty to disclose corpus' identity irl, but trust me when i say that at times like these, this individual may be the number one person (on and off twitter) to listen to...
In preFDIC days, the bank run playbook was (1) pile up gold behind the tellers (2) pay out every withdrawal with very slowly to buy time & dispel panic (3) call your bank pals for loans (4) get a prominent community leader to make a public deposit. Some times it worked. For SVB
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thinking of convening a twitter spaces
no idea what we'd talk about since nothing is going on
if ten knowledgeable folks will help talk through recent events, i'll do so
no harm no foul if not
yay or nay...
let me know below
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I study banking for a living (still can’t believe I can pay the mortgage doing so!), and the folks at Hingham Institution for Savings are the best of the best.
An analog for anyone interested in banking.
Their latest annual report:
$HIFS
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SILICON VALLEY'S BIGGEST PROBLEM IS THAT 95% OF ITS DEPOSITS ARE UNINSURED
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a mistake lots of us make...
when we talk about a bank being "well-capitalized,"
we forget that's a term of art...
not a description of reality.
***i mean, come on, they use ten-to-one leverage***
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folks often ask how i monetize the knowledge i've acquired and the relationships i've built
when i tell them that's not how i think about things, it's obvious they feel sorry for me . . .
. . . which makes me feel sorry for them.
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exciting news, banking twitter...
on mar 6-7 in philadelphia, i'm hosting a banking symposium...
no bullshit. no salespeople. no buzzwords.
this isn't for profit. zero dollars go to me.
this is for people with passion — people who love to learn...
1/
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Bloomberg editorial (
@business
) today...
HEADLINE: "If the Banking Crisis Offers One Lesson, Let It Be This"
SUBTITLE: "More capital would make future disasters much less likely"
Turns out, that's the opposite of the lesson to learn.
I present first republic's capital ratios
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@Schornack
@evernote
Complete file of Wilmers’ shareholder letters while chairman/ceo of
@MandT_Bank
from 1983-2016.
@Schornack
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I consider Aaron Graft’s annual letter to be a must read in banking.
It is the industry’s most interesting story.
And you can take it as gospel that Aaron is among the brightest, and best, folks in banking.
You can find his letter below…
The theme of our 2023 annual report is "Staying the Course,” and I especially like its cover graphic because it tells a story. We are on a journey as a company to revolutionize billing and payments in the trucking industry. We have a specific destination in mind and we are
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you can't understand today's market, imo, if you don't know what happened in the 1980s and early 90s
esp for bank stock...
i break this down in my first true long-form piece on substack:
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10. Capital allocation
The typical bank allocates roughly a third of its earnings to dividends, a third to buybacks, and a third to organic or external growth.
But what distinguishes the best banks is that they consistently raise, and never cut, their dividend.
END/
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3. Skin in the game
Bankers perform best when they lend and spend their own money.
It’s good if a bank’s CEO owns ~ 5% of its stock, like $HOMB.
But it’s better if the CEO is the largest shareholder, like $HIFS + $GSBC.
The SEC provides this data...
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my niece asked to play chalk which parlayed predictably into a lesson about how not to diversify a mortgage portfolio
(pie chart: WaMu’s mortgage origination volume in 2006)
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Two months ago, I hosted an elite banking symposium.
Wanted to share my opening remarks (will share the second part soon).
It's the culmination of 15 months of rigorous study.
Keep in mind, this took place four days before Silicon Valley Bank failed.
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1. Age
New banks are twice as likely to fail as old banks.
A handy benchmark is 100 years old — the median age of a bank in the U.S.
You can find a bank’s age on the FDIC's website here…
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At the end of 1926, there were sixty banks in Palm Beach County. By the middle of 1927, only two were left.
A few months later one of the remaining two was acquired in lieu of failure by the sole remaining bank.
From George S. Moore’s autobiography, which is A+.
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Hung out with the folks at First Financial on Thursday. This is the bank that’s made money every year since 1890 — the only bank in the U.S. to have done so, I believe. That’s Scott Dueser with me. He’s a king, as my secret hedge fund friend would say. Ten out of ten.
We wrapped up another great session of FFIN University this week! Investing in our employees’ futures and successes not only benefits them, but impacts the high level of excellence our customers expect and the future of our industry.
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The guy behind the
@IdeaBrunchEmail
newsletter — Edwin Dorsey, aka
@StockJabber
— is one of the best folks I’ve met. He believes, like I do, that a rising tide lifts all boats and he lives it by giving away his time to help others learn. A terrific dude.
A masterclass on our banking system by
@MaxfieldOnBanks
We discuss the reasons banks fail and the banks best positioned to succeed today
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banking twitter
made something for you
a dropbox file
ten things (+ two)
the titles explain each doc
go in order
1-6 are short and compelling
7-10 are longer but important (download and flag for later reading)
11 & 12 are images
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"It was either choose violence, which gets America's attention, or it was choose finance,"
@KillerMike
recalls thinking. "Because in America, coincidentally enough, when you get the attention of corporations, policy changes."
The
#BankBlack
story...
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