The bank CEOs that created the most shareholder value in recent decades — Mick Blodnick at $GBCI and Robert Wilmers at $MTB — ranked in the bottom quartile of their peer groups in terms of pay.
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.
8. Performance in time of crisis
A simple litmus test for any bank is to check whether it lost money in the most recent financial crisis — in this case, the 2008-09 crisis.
“The first rule of compounding is to never interrupt it unnecessarily,” says Charlie Munger.
9. Relentless growth
$FFIN doesn’t have the highest valuation in banking — 4.1x book value — because it’s the most profitable bank in America, but rather because its earnings per share (EPS) has increased every year since 1986.
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.
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Over the past year, I’ve talked w/ many of this era’s most accomplished bankers – Brian Moynihan, Richard Davis, Rene Jones, John Allison, Mick Blodnick, Joe Turner, Terry Turner, Scott Dueser, and others.
I’m doing so in most cases for a book I’m writing on banking.
But also because I want to know what it takes to be an exceptional banker.
What unique traits and characteristics do they share that distinguishes them from others?
Most people don’t appreciate how hard it is to run an exceptional bank – one that generates superior returns through multiple cycles.
The leverage is so extreme and the credit cycle is so acute that there is basically no room for error.