Banking is just a sleepy, boring industry, right? Ha! Not if you’ve read the headlines lately.

The failures of Silicon Valley Bank and Signature Bank (the third-largest bank failure in U.S. history) turned the financial world upside down almost overnight. Is the entire financial industry about to collapse?

Veteran banking analyst and writer John Maxfield doesn’t think so. Maxfield is the executive director of the Wilmers Integrity Prize, named after Robert Wilmers, the longtime CEO of MMT Bank. He was formerly the editor-in-chief of Bank Director magazine.

For the second time in a year, Maxfield joined 7investing lead advisor Matthew Cochrane to walk listeners through what happened at the above banks that led to their insolvency and subsequent takeover by the FDIC. Maxfield explains that the ground for the error was laid in early 2020, when Silicon Valley Bank was overtaken by a deluge of deposits flooding in from the government’s response to the coronavirus pandemic. The bank’s deposits more than tripled over the next two years, climbing to $189 billion by the end of 2022.

Silicon Valley Bank treated this windfall as regular deposits and invested the money into long-duration assets, simultaneously betting that the deposits would be sticky and that interest rates would remain low for years. Neither would prove true. As interest rates rose, these assets declined in value precipitously. As it became apparent that SVB’s paper losses were enough to make the bank insolvent, venture capitalists advised the startups in their portfolios to withdraw their money, leading to a bank run and a lightning-quick collapse. 

Maxfield advises when the banking equilibrium becomes unstable, it implodes exponentially, not linearly. Meaning banking panics can get magnified as more banks fall and panic spreads. This helps explain why First Republic Bank (NYSE:FRC), a “good” bank by all accounts, got caught up in the carnage, as it too had a large percentage of uninsured deposits that account holders rushed to withdraw as soon as the bank experienced a loss of confidence. 

As the panic spread, even foreign banks, such as Credit Suisse (NYSE:CS), experienced a loss of confidence and were rushed into a forced merger with UBS Group (NYSE:UBS). 

Maxfield talks through the rapid fall of these institutions, peppering the conversation with a plethora of historical examples, using his rich knowledge of the banking industry. Along the way, Maxfield and Cochrane discuss 1) FDIC insurance and whether it should be expanded to include all deposits; 2) why regional banks are necessary; and 3) whether banking regulation should be more robust. 

At the end of the conversation, Maxfield explains why fast growth at financial institutions can be a red flag and gives examples of banks that he believes are well run and worthy of a long look from investors, such as Hingham Institution for Savings (NASDAQ:HIFS) and M&T Bank (NYSE:MTB).  

Transcript

Matt Cochrane  00:11

Okay. Greetings fellow investors. I’m Matthew Cochrane, a lead advisor at 7investing where it is our mission to empower you to invest in your future. We do that by providing monthly stock recommendations to our premium members and educational content that is freely available to everyone.

Listeners today I’m very excited to introduce John Maxfield. We had him on last year. I’m excited to talk to him again. He is a longtime writer in the banking space, and he’s currently the Executive Director of the Wilmers integrity prize named after Robert Wilmers, the longtime CEO of m&t Bank. John was the editor in chief or bank director magazine. He was previously the senior banking specialist at The Motley Fool. He still regularly writes for bank director magazine and bank director.com. His work has been syndicated widely to national publications, including USA Today time Business Insider, he’s been a guest on CNBC. Currently, he recently launched his Max Ilan bank substack, which we’ll let him tell you all about before we’re done with today’s episode.

John, I said this last year, but it bears repeating when I was younger, not young, but younger. Starting out my writing career. One of my first editors said, Oh, if you’re interested in covering financials and fintech, you should follow John Maxfield. And ever since I’ve been a regular reader of everything he writes that I can get my hands on. That was excellent advice. He’s one of the best banking analysts I know. And more than that, John is really a student of banking. And I can’t wait to talk to him today. John, welcome to the show.

John Maxfield  02:03

I appreciate that very much. It’s like I think so finally back on are like the Motley Fool days. Do you know what I mean? Yeah. And it’s like, we’ve all kind of gone out, we still all kind of have this like this kind of like community and network. And it’s like, it’s so fun to be doing all this stuff together.

Matt Cochrane  02:19

It’s, I totally agree with you the the friendships I made there, there are some truly spectacular people and spectacular writers that I still follow. It’s a great fraternity, you know, for lack of a better word, for sure, for sure. John, you know, we had you on last year, as I already mentioned, you know, and I want to have you on more, but the problem with banking, John, it’s just so boring. Nothing ever happens in the banking industry. You know, it’s like, what could we possibly talk about? When we talk about banking?

John Maxfield  02:52

That’s true. There’s like it particularly right, right now, it’s like, particularly quiet in the banking scene.

Matt Cochrane  02:59

You have to really, like look past the front page to really get to, like some stories. Um, so obviously, I kid there is a lot going on in banking. John, you know, I think you have to be living under a rock to not know the headlines. You know, just within the last month, Silicon Valley Bank was shut down by regulators. You know, the FDIC took control shortly after that Signature Bank was the next casualty. You know, I think that was the third biggest bank failure in US history.

John, Like, why don’t you tell us? I think we know the common narrative. And maybe that’s all there is to it. But like what exactly happened with Silicon Valley Bank and Signature Bank? Like, what’s the what’s the real story there?

John Maxfield  03:59

All right. So let me start with this. When you think about the banking, like the banking industry is a system. Like what we’re going through right now kind of illustrates a really important point about it. And that is that the banking industry is in a it kind of exists in an unstable equilibrium, but kind of goes in and out of an unstable equilibrium. And what I mean by that is that, see, if you’re in a stable equilibrium, when you go out of equilibrium, you go out of it in a linear way. So it’s like dominoes, you click the dominoes, and then the the force is relatively similar, although as they click all the way down, right, in an unstable equilibrium, so this is like a, like a chemical compound, for example, that it has to stay within a very specific temperature range. If it gets out of that it’ll like explode when it explodes. That is not a linear process.

John Maxfield  04:49

It’s more like exponential. It’s more like nuclear fusion as opposed to like dominoes, right? Because as it goes out, it gains momentum as it goes out. What we see with a banking panic like we’re experiencing right now though it’s dissipating is that when something happens, then the effects get bigger, they get magnified throughout as a kind of travel throughout the industry. And so when you think about what’s going on right now, you can trace it all the way back to one decision at Silicon Valley Bank.

And this is what that decision was. So, in the when the Coronavirus pandemic began, the government comes in and floods the US with fiscal and monetary stimulus to offset a 30% annualized decline in GDP, which is worse than even the Great Depression, okay? They flood all this money into the economy. And where does a lot of that money go? Well, it goes to like the VC world and like the startup world, and if you recall, back in like 2020, the latter half of 2020, the first half of 2021, there was a huge IPO boom, there’s all these companies rushing to go public, because the valuations that they were that they were earning, were so huge. And so you had all this money flooding in well, Silicon Valley Bank is the bank for those companies, those startup companies. And so those companies would go get all this money, and then they would put it on in count at Silicon Valley Bank, and then that would be their operating account.

Okay, so all this money floods into Silicon Valley Bank, and I bet so at the end of 2019, they had about $61 billion in deposits, within two years that had grown to $190 billion, so just like $130 billion in cash, just flooded into this bank. Okay, so tripled, its size is all this just a delusion of cash. So this this, should the chief financial officer sitting there saying, Okay, what am I going to do with all this money? What am I going to do with all this money?

And he basically had three choices, he could buy a ticket they can make, or they can make or buy loans, they could buy securities, or they could leave it in cash. With the problem leaving it in cash is that it cost money to service those accounts, but they would be earning no money. So they just be on a net loss type of situation. If they made loans, well, you cannot grow a loan portfolio that fast, right? Or it’s you’re just doing stuff and you’re going to space in the norm and an inordinate amount of credit risk. So that left them basically saying, all right, I guess we’re going to buy some securities. And so that that point, they came that this now comes the critical decision that was made.

Matt Cochrane  07:33

They say, okay, what are we going to?

John Maxfield  07:35

What type of securities are we going to buy? And what is the duration of those securities that we’re going to buy. And what they did is they took, there’s these asset liability models that banks use to balance their balance sheet to make sure that the duration of their assets matches the duration of their liabilities. And what those models say is that the duration of a non interest bearing deposit, so like a checking account, right, it’s almost like an indefinite duration, this the longest duration liability on the balance sheet, okay. And so that means that you look for long dated assets to match that up against. So so they’re looking at this model and saying, Oh, we have, you know, incomes $130 billion worth of this stuff. And it’s all long dated. So they go on to say, well, let’s go buy long dated assets. So they go and they buy a ton they buy, I can’t miss, like $70 billion worth of mortgage backed securities, gotta buy a bunch of long dated treasuries certificate, those treasury securities. And that walks them in to where when the rates eventually rise, and they basically making a huge bet, that rates were not going to rise, because if rates ever rose, the value of that portfolio would would decline. And that’s kind of what set everything in motion.

Matt Cochrane  08:49

But on the surface, these weren’t risky assets, right? I mean, these were like, these are, like, stable assets. This wasn’t like the financial crisis. They weren’t out making bad loans. They weren’t out buying, you know, bad mortgages. Um, they were crying. I mean, they obviously we’re gonna get to like, there’s a huge mistake, and you already got there. But like, like, on the surface, these aren’t bad assets to own. The problem was the interest rate risk.

John Maxfield  09:17

If you were to go back and just like plop yourself down in the middle of 2020. And then some somebody showed you Silicon Valley’s balance sheet, and they say, is this risky or conservative? You’d say that is really, really conservative. Because they bought GSA they bought GSE. So these are government implicitly guaranteed securities. So yeah, it looked really really conservative.

Matt Cochrane  09:45

So they, you know, obviously interest rates did rise and is that just what caught up to them and set this whole thing off?

John Maxfield  09:55

So they the the mistake they made was that all these additional deposits have flooded. And these are not like normal deposits. This is like it’s like a windfall. It’s like a windfall profits in a sense. And so they shouldn’t have they should the mistake they made us but to treat them like normal deposits. For asset liability, man, they should have just said, Look, you know what, like, they should either taken it off their balance sheet just put in money market funds, we just left it. And I mean, all this stuff as easy as Monday morning quarterback was they were facing a lot of pressures that time to figure out what to do with it, because the analysts were on the conference call saying, how are you going to support your net interest income? Right. So, you know, they’re trying to figure all this stuff out, right.

But in hindsight, you know, they should either letting cash and just taking the hit, or you may have done some sort of off balance sheet arrangement, where they put it in a money market mutual fund or something like that. But they didn’t. And so what they had, as they’re sitting on this portfolio of, I can’t remember how big eventually was $100, and must have been $140 and $150 billion worth of long dated securities. And so when the interest rates rose, and the interest rates didn’t just rise, I mean, starting at the beginning of 2022, I mean, they went up further and faster than ever before, even faster than the early 1980s, when Paul Volcker went in and attacked inflation.

And so that happened, I mean, that just like the value of that thing just just plummeted. And so what and then the, there’s customers watching that saying, Oh my God, if you mark to market, all those securities, this bank is insolvent. And so then that’s when Thiel and Andreessen and these VC guys told their portfolio companies get your money out. And then once that started, that was the run that started, that was the beginning of the end.

Matt Cochrane  11:43

That was the beginning of the end, like the bank, right? It is also one of the problems I you kind of hinted at it, but like with Silicon Valley, and correct me if I’m wrong, is it this isn’t a normal bank, as far as they’re not like, most of these, like you said, like, a lot of this was stimulus money that went to the VC world. And, you know, we had super low interest rates, none of this, Silicon Valley Bank is not really made up of like families opening up their, like, you know, normal checking account, normally, quote, unquote, normal, but you know what, I mean, this isn’t middle class America. Like checking and savings accounts. This is like a lot of this. So much of this was from the VC world.

John Maxfield  12:27

Yeah. So this is a bank that’s, that serves a very specific niche. And that is the caters to the entrepreneurs who run these companies, the startup companies and the companies themselves. And so to give you a sense for like how what that means in terms of quantitative statistics, the average account of Silicon Valley was had $2.9 million in it, going into 2020. And then by 2021, once all that additional money flooded in the average account, and Silicon Valley had $4.9 million in it. Now, that is really important, because the FDIC only guarantees up to $250,000 worth of deposits, although then now in hindsight, now they’ve done some things to guarantee them all, but like, at the time, it only guaranteed up to $250,000 worth.

So what that meant is that literally 95% of the deposits of Silicon Valley were not insured by the FDIC, whereas at a typical bank, it’d be like 77, 78, 80% of deposits are or more are guaranteed by the FDIC. So like, if, you know, as those people watched what was going on? They said, like, um, this is like, basically like, a bank run back in the back in the day when when people were literally just afraid that they’re gonna lose all their money. Right. And so that’s why it happened so fast. They lost, I think they lost $40 billion in one day.

Matt Cochrane  13:54

Just incredible. Let’s, I mean, there’s a lot I just want to pick, pick your brain on today. But like since it came up, can we talk a little about FDIC insurance? You know, it covers like you mentioned, and I think most people at least know this or have an idea this, that, you know, FDIC insurance covers deposits up to $250,000 per account. Should that be more like we hear a lot of people saying like, well, like, why don’t we just cover all accounts? And one, is that feasible? Is that better?

John Maxfield  14:34

Okay, so this is, this is a this is less a banking question than it is a social question. So if you think about what the FDIC is, it’s basically as it’s a it’s a, it’s a cog in the social safety net. Right? It’s just a it’s a piece of that. And so, I mean, from the banking perspective, what it does is it reduces the incentive to run on banks. So that’s really helpful, right? But you’re never going…unless you unless you guarantee them all the way up to the top, you’re never going to completely eliminate the incentive to run on a bank. Because you have these large depositors are sophisticated and who stay up to date on things. And who fail. There’s just no way to guarantee all their, you know, their deposits all the way up to the top. And so like, those are the folks that run that those are the folks that cause runs on banks. And this goes back to like, so there’s a big bank that failed in 1984, called Continental Illinois, is a big bank in Chicago is the sixth or seventh biggest bank in the country at the time, and a big wholesale bank, and it had depositors from like, Japan, and Europe and all over the all over the world. And it got caught buying these loans from this bank and Oklahoma that turned out to be no good. The publicity got publicity as a result of that. These depositors learned about it, and then they started withdrawing their their money out in, in mass out of that bank. And so like this is really the modern kind of styles ever since the mid 80s. It’s really the modern style of bank run. And it’s still going on today.

Matt Cochrane  16:09

So I guess, should there be a cap, though? Like, it almost seems silly, I guess. Like, I could have 50 bank accounts with $250,000. And that’s all insured, if it’s different bank accounts of, you know, 50 different banks, or even like a checking account and a savings account at 25 different banks. Should it just be a cap per entity? Like it just seems like? I don’t know, like maybe. And, you know, normally I’m really not a big regulation guy, and this could be misguided. But like, is there? It almost just seems silly that it’s by per account, then like per entity or per person? Or is there a purpose for that? That I don’t understand.

John Maxfield  17:05

So there is kind of to your point, like, right now, there’s basically an implicit guarantee of all big banks deposits, like they’re not going to let JP Morgan fail. I mean, they’re just, it’d be cataclysmic for the US economy. But they will f&m bank fail, and wherever it is, you know, like, Lubbock, Texas, right? Because like, who cares? If it’s if it’s not systemically important, let it fail. But like, that brings up questions of like, like fairness. Like, why can this bank do stupid stuff. And just because we saved and like this little bank, like, does less stupid stuff, but like, it doesn’t get saved? You know what I mean? So there’s there, there are fairness issues related to this.

But here’s the thing about deposit insurance. So if you give unlimited deposit insurance, you expose the country to an enormous amount of financial risk. So if you go back to like the 2008 2009 2010, to 11, like the crisis and how it kind of spread over into Europe, and then what happened over there with those countries, remember, Ireland goes in and had to rescue, its, I think, I don’t know how many of its banks had to rescue, but we had to rescue one. It’s really big banks, like it basically bankrupted the entire country. I can’t remember Sweden, or Finland, or Norway is one of the Scandinavian countries had a very similar situation. And so you have to be careful with banks. Because you, let’s say you and I want to start a bank. There’s literally an infinite demand for credit. Like if you make the terms easy, and the rate low enough, you and I could start a bank. And then the people did this in the financial crisis, they would go in and buy these essentials, and then just grown from like, 10 million in assets to like 50, or like four or five, 6 billion over the course of like, a year or two. I mean, you can literally grow it as big as fast as you want it. Right. Don’t want to expose your government to that. Right. And so the question is, like, how do you, you know, dance that fine line? And, you know, I think it’s, it’s a conversations going on right now, in Washington. And it’s not an easy one, just because, and it’s not just because it’s politics, but just because, like, it’s just hard to figure out what to do.

Matt Cochrane  19:13

That’s, that’s a great point is like in you know, I think maybe the recency bias and all of us, certainly me, you want to figure out how we could have prevented this current crisis, and how we could have prevented, like, what’s going on right now, without thinking like, well, you know, look, just 15 years ago, you know, there’s another crisis caused by different reasons. And, you know, like, I guess it’s always a matter of like, weighing the pros and cons of everything and looking beyond just maybe the most current shiny crisis.

John Maxfield  19:51

You know, one thing I would say, I would say is that like, when you’re weak, and this is gonna sound really ridiculous, but I’m not sure crises are bad. Because if you don’t have crises you don’t have the run up?

And let me let me give you a specific example. So there’s a guy by the name of Jay Cooke. And Jay Cooke was like the banker, the financier of the day back in the Civil War. And like the, like nobody in Washington thought that they would they would ever be able to sell enough bonds to finance the union’s effort in the Civil War. Well, they were because they got Jay Cooke. Jay Cooke was really the first person to figure out how to like mass market government bonds to sell government bonds. And I mean, I can’t remember what battle it was after Appomattox or something like that. But Grant basically said, like, had it not been for Jay Cooke, like, I don’t know if we could finance this? Well, I don’t know if we could have won this war. Right, right after the war. And Jay Cooke comes from this really good family of these people were like upstanding citizens. In fact, they’re fantastic people.

And the government goes to Jay Cooke and says, like, Hey, we’re trying to shore up the northern border of the United States, because the Brits are trying to come down. And you know, the way you shore up a border like that is you populate that area, the way you populate that area at the time is you build a railroad. So they’re building the Northern Pacific. But the issue is that they’re having problems financing it. Well, if you have problems financing something, you go to Jay Cooke, if it’s a back in the 1860s, and 1870s, say, go to Jay Cooke. He says, what can you do for us? He said, Look, I’ll, I’ll take care of the financing of this. He takes care of the financing basically takes it all on his own balance sheet. And there’s a panic at the time, because his bank to go down. And then his bank is a bank in Philadelphia. And if they would his bank failed, because it was it was like, I mean, it would be like JP Morgan failing JP Morgan Chase, it’s that significant, that caused a wave of other bank failures after that.

But the point is that like, so you look at that you say like, yeah, like the panic of 1873. And the resulting depression afterwards was bad, and nobody liked it, and blah, blah, blah. But like, we got the Northern Pacific, and we shored up that border, you know what I mean? So it’s like, it wasn’t worth it. I don’t know. But like, it’s not clearly one way or the other.

Matt Cochrane  22:08

It’s definitely an interesting, that’s a, that’s a great point. Let’s, let’s move on, like, I want to talk to you, like just a little bit about like, First Republic, because what makes this interesting to me, and, you know, in my limited knowledge of banks, like first republic was like, what I would call a quote unquote, good bank, like they’re renowned for their customer service. You know, like, like, by all accounts, like they had like the best customer service in the banking industry. All I ever heard were like, amazing things, like you go into the banks, and there was free umbrellas to grab because in case it started raining, while you were in there, you know, you grab the free umbrella, just the little things like that. Were always the antidote you heard, but just like the great customer service, and now, first republic is in trouble. And, you know, over the last year, their stock stock price is down 90, almost 93% Over the last week. I mean, this has been a whipsaw, like a roller coaster, you know, Down Down 46%. In the last week, but in between, like, just this week, I mean, it’s been up and down, just a total roller coaster ride for shareholders. Is this was this a good bank? Was I wrong? And you know, if it is a good bank, like how does I guess like, you know, how come like this, even these kinds of crises can hit, quote, unquote, good banks. So

John Maxfield  23:39

I share the your same opinion of first republic that is very good bank. But it’s suffered from two unfortunate associations. One is that it was in the same geographic area and would have had many of the same clients raised in San Francisco area. Sure. And the second is that because it to serve high net worth clients and businesses, it also had a small percentage of its deposits that were insured by the FDIC. And so I think in its case, I think 80% of its deposits were uninsured 20% were insured. So again, it created this like fear that like, Oh, God, this one goes down. I’m just gonna, it’s not like, I’m gonna be inconvenienced, because I’m not going to be able to get my money for a while, but like, some of that money could go to money, heaven for good. Here’s what I mean. Right? Like, that’s kind of what caused that, that, that that contagion over the First Republic. Now, what’s interesting is that there was a study done in 1921 of bank failures. There are a whole bunch of banks are next one isn’t, I think, maybe 1925 or 1926. There are a whole bunch of banks for the 1000s of bank failures a year in the 1920s. This is the decade before the Great Depression, because there was a drought that spread across the United States and said all these rural banks failing all over the place, and there’s a group of folks that under Florida, your neck of the woods, who just said let’s do a study of bank failures to see why they fail. And they found that, like 20% fail because of like the drought 10% failed because of making bad loans like a 5% fail because of bad legislation. Like, there’s a variety of different things that add up. 50%. But then they said, but 50% of banks fail as a result of idle gossip, rumors, these rumors about that were untrue, about the health of a bank spread for whatever reason, but caused these otherwise healthy banks to fail. And, you know, it’s been a long time if you think back on the financial crisis that we had 15 years ago, like don’t they typically the banks have failed, probably deserved to be to fail because they have got overextended on commercial real estate or you know, the subprime mortgage type of stuff, but like, it’s been a while since like, I’d really decent bank has failed just as a consequence of contagion. And like, that’s, that’s my reading of what the situation was first Republicans.

Matt Cochrane  26:02

Yeah, a writer who I follow recently said, like, capital isn’t King confidence is for banks. That might be so is that the case with with first republic? That writer is you by the way, like your substack. But like it like so is, you know, how do banks maintain confidence? You know, like, or how do you? Is there anything a bank can do? When that starts happening? You know, if that’s true, like, what what can banks do? I guess.

John Maxfield  26:36

So, um, so that is, here’s what’s interesting about that. Do I have the power to share screen? I don’t know. Why do you? What can I share a chart with you? Yeah, absolutely. Hold on. Let me just pull this up real quick. I don’t know if that just cause my screen to go blank. But give me just one second all because this will really illustrate the point. Really well. Okay, let’s see here.

Matt Cochrane  26:59

All right here. Okay, great. Let me go ahead and share it. Okay. All right. So um, can you see it? Yes. All right. So

John Maxfield  27:17

this is so this is guys goes to that point about a confidence is King capitals is discord gesture. So there’s this in banking, there’s a saying that like, confidence is King right? Confidence is King confidence or mmm, capital is King capitals, King capitals King? Like, that’s what everybody says. And this came out of the last financial crisis. We had people saying like, the reason we had a financial crisis, so many banks failed, because like they were they didn’t have enough capital on their balance sheet. Okay, so that’s, that is that’s what most people think of banking today. Okay, right. Not true. Okay. So let’s start with the list. Let’s start with them. Go back to that crisis. So what was the biggest bank failure, the crisis, that crisis is Washington Mutual, it’s the biggest bank failure of all time, 300 plus billion dollars in assets. If you look at the second quarter of 2008, which was the last quarter of which it reported before it was failed. It had the highest tier one comma capital ratio of any big bank is higher than JPMorgan Chase, higher than Citi, higher than US Bank or, or Bank of America higher than wells, okay. You think like, if capital is king, and they just raised $9 billion from a private equity firm called TPG. If capital was King, that thing would still be around. Okay. And then, same thing with Silicon Valley Bank, like this is how it’s to uncommon capital ratios stacked up against the other big banks. It was less than JP Morgan the city, but it’s more than Bank of America wells and m&t.

Matt Cochrane  28:45

And so the point is that like,

John Maxfield  28:47

the way the reason I say the capital is court jester, not King is because it distracts everybody, everybody’s looking at Oh, the play capital, everything’s fine. You don’t mean like this, then it doesn’t matter if you have 10% capital or 12% capital, but what matters is that you have 88% assets or 90% assets that could like if you if those are bad assets, they’ll just crush that additional

Matt Cochrane  29:11

your 2% Sure. So So what is what so what I mean, does it so does it regulation though focus I mean, the regular regulation is all about the the capital requirements Am I wrong there? I mean, it seems like again, much more limited understanding So correct me if I’m wrong, but it seems like the regulation when they do the stress test it’s about how much capital they have how much liquidity Am I wrong there is regular regulations focused on the wrong thing. So I

John Maxfield  29:44

think the answer that is both yes and no so like the purpose of the stress test, so is to like ultimately decide just to terminate there’s enough capital to survive, you know, and liquidity to survive at some sort of like Cataclysm a downturn, right? Sure. But because the stress tests are so public, they’re also meant to induce confidence in the system. So it’s not like there’s not like, these two things aren’t necessarily mutually exclusive, although outside of a very small group of people who understand these nuances are lost on most people. And so then they just reduce it to capital, or capital is king. So they build like, you know, you look at the, you know, all the big banking publications, financial publications will rank the banks every year based on a variety of different things. And they have five different metrics of safety, efficiency, profitability, credit loss account mechanic, credit losses and capital. And the capital is it takes the form of safety. But it can just, there’s just no correlation. I mean, I haven’t been able to discern any correlation between the safety of a bank and the amount of capital it holds as crazy as that sounds.

Matt Cochrane  31:00

Sounds insane. It sounds like it sounds counterintuitive to almost like, common sense.

John Maxfield  31:08

What because here’s the thing, like you go back in time to like, the late night late in the 1980s, late 1980s, where you have this this SNL crisis, and so you had the beginning of the SNL crisis, you had a mismatch crisis, because interest rates are high, short term, interest rates are high, long term interest rates are lower. So yet, they paid more for their deposits than they’re earning on their loans. Well, then these bank, what these estimates did is they then gotten into these other areas, doing stupid stuff, like buying junk bonds, and like getting into cre type of deals, and all this kind of stuff that they had no experience getting into, to offset that, what the when these companies would go out, and they’d be saying, like, give us your deposits, we’ll pay you 7% 8% 12% On your deposits, they’d be putting these ads in newspapers. And in those ads in the newspapers, they’d be saying, we have three times as much capital as is required by the federal

Matt Cochrane  31:57

government. So we are safe, right? Sure.

John Maxfield  32:01

But then these things, I mean, the stuff and some of these ads, like 90% of the loans were bad, so didn’t get three times as much capital, because 90% of their loans are bad. I mean, just like, it just is like a little like a pebble in front of a bulldozer, you know what I mean? And so the problem with it is that, like, if you don’t understand the nuance, you can really you can, you can, you can really fool you to think that like it is indeed synonymous with safety.

Matt Cochrane  32:28

So without, I think I know what you’re gonna say, but without like, diving into a banks loan book, which is virtually impossible, like, you know, that mean, you know, I can’t even fathom how many loans are on the books of like, regional banks, much alone, much less like JP Morgan, or Bank of America, without piling through that, and then trying to evaluate each one. How, you know, if you can’t look at Capital, you know, in how much capital A bank has, how can you evaluate when a bank is good, or when it’s bad?

John Maxfield  33:05

Okay, so that where I’ve, where I’ve settled on this, is that. So first of all, when you you look at banks, financial statements, like, it’s like, it’s like Candyland is like,

Matt Cochrane  33:19

it’s like,

John Maxfield  33:22

this is not because they’re trying to make it up. But it’s like, the accounting rules are different than all these different things. It’s like, you’re, you’re kind of guessing at valuations, because you don’t know you’re, you’re sitting on a whole bunch of loans, but you don’t know if they’re gonna be good or bad. But the loan is good, is only good once it’s paid off. Until then you have you don’t know if it’s good or bad. So you’re sitting on a loan portfolio that you don’t know if it’s good or bad, right? So you like you just it’s you there’s no way to look at these financial documents and insert anything of much value from them at all. I hate to say it, just like, that’s just the case. And I studied this stuff a long time.

Matt Cochrane  34:00

You know what I mean? Yeah, no, absolutely. Yeah. So

John Maxfield  34:01

I have fallen, is that the thing to do is, what I do is the first thing I do when I look at a bank is I look at how it performed the last crisis, because the cost of goods sold, those loans have now been all the way through and processed through the books. So we know how that will have those performed. So you’re like, how did it perform in the last crisis even made it through without losing any money? That’s kind of what you’re looking for. Okay. And then you want to see what if they made it through that losing money? Is there a continuity of management? Right, either the same management or, you know, the same actual CEO or, you know, there’s a friendly succession succession at the bank, right? And so that’s kind of what you’re looking for, but really, where I have settled is this. You cannot because you cannot rely on the numbers in their balance sheet and income statement and all this kind of stuff. You have to rely on the people that are running these things. What do you see is that

Matt Cochrane  34:59

the People who

John Maxfield  35:00

have run the best banks, the robber Wilmers is the MC Blahniks. That Goggins out in Boston and hang them institution for savings like these folks, the thing that they share in common is that they’re all committed to their fiduciary duty, and specifically the fiduciary duty can self dealing. And what that means is they put the interests of their organization above themselves. And that’s important in banking, because banking is not rocket science, okay? Like, it is not complicated. And like, it just says it and like, I don’t care what anybody says, it’s really simple. Okay. But if you try to overcomplicate it, or if you if you’re looking out for yourself and not the entity, like, that’s, that’s where things are going to happen. If you’re just like, you care about the entity, you’re not trying to overcomplicate it, you can earn 12% 14% of your equity, just every single year, just every bang, bang, bang, bang, bang, bang, bang, every single year. So that’s really the case, you have to assess the individuals trying to get like get to know them, read what they write, see if there’s any speeches that they give on YouTube, like, and then just take your mind out of stock market brain and put your brain in like normal person brain and say, Does it seem like a trustworthy person? Do they make eye contact? What’s their handshake like? Like? What are the what is the feeling you get about them as a person? And that’s what I would say.

Matt Cochrane  36:26

That’s a that’s all very good. Let me let’s pivot again, though. Because there’s there’s just so many things I want to talk to you about. One of them being Credit Suisse merged with UBS. So I know this is over in Europe, I’m not sure exactly like if this is as much in your wheelhouse or not. But this is just a copy of the press release. But like, there’s, there’s a, you know, they the Swiss are kind of blaming the US banking crisis, too. You know, which is why I highlighted this article. If you’re watching on YouTube, if you’re just listening on the podcast, you know, I just have a, the headline reads the Swiss claim the US banking crisis ultimately toppled Credit Suisse. But are they right? You know, Credit Suisse chairman said, the latest developments that emanated from the banks in the US hit us at the most unfavorable moment. One time like last year, we were able to able to overcome the deep market uncertainty. But not this second time. SMB Chairman lamented the US banking crisis, for accelerating a loss of confidence in Switzerland, which had rubber cushions for credit, Credit Suisse is liquidity. So let’s let’s go across the pond and like what, what happened with Credit Suisse? Why it got cut?

John Maxfield  37:51

I mean, the Swiss authorities are right, it got caught up in this in this kind of this melee, but they’re where they’re wrong. Is that like, Credit Suisse? Like steps in the middle of everything. Like there’s something?

Matt Cochrane  38:05

It seems like since I’ve been an investor, like, you know, you have a joke about Citibank, and you go back to like, 100 years for it. You know, I can’t go back 100 years on current Credit Suisse. But I can go back like 1012 years. And it just seems like they are just constantly mired in scandal or like trouble or, you know, like, Oh, were they got caught banking with a terrorist or, you know, I mean, just like, time after time again, they’re just always in trouble.

John Maxfield  38:33

It’s like, at the it’s like the guy who’s always at the college party getting drunk. Yeah, go. There’s bill. Bill’s always at the party getting drunk. Right, right. Right, exactly. What I expected to see here is like, they’re just having party getting drunk, and every party, you know what I mean? Right, right. And then Citigroup. But now I will say that Citi Group wasn’t at this party. It was like, this is the first party in 100 years, they weren’t at like, we should we should commit. Let’s wait

Matt Cochrane  38:59

till it’s over. Let’s wait till it’s time. There’s still time. There’s still time. Yeah. So how did the US crisis affect Credit Suisse? And like, what’s going on? You know, how big of a deal is this? Well, I mean, you know,

John Maxfield  39:17

it’s a big deal, insofar as the size of Credit Suisse and the importance of it to the European financial system. I mean, it really is like a systematically important financial institution. Whereas, you know, there are arguments that way. That least Silicon Valley Bank and First Republic were not systematically important, although, like, I don’t know if that’s necessarily, I don’t know if I just, like, necessarily agree with that. variety of different reasons, just because like they started the contagion, so they’re big enough to start the contagion. It’s like, isn’t that systematically important? I don’t know. But so yeah, I mean, it’s just it’s just a bigger bank, but it’s just the same. It’s just the same type of stuff, a loss of confidence in these in that bank because of have kind of its reputation and its history

Matt Cochrane  40:07

you’re on mute. We’re talking on sorry about that. We’re talking on Friday, March 24. You know, this is going to be released early next week. But just last night, Moody’s said like, hey, this termite turmoil can’t be contained. And even though like, they’re like, look, the US is going to broadly succeed here, quote, unquote, but like, a lot of this can’t be contained. We’re talking about contagion. Like, are we still early innings in this crisis? Or is this game almost over? Like, where are we at right now, John? Like, is there a lot more bad news to come? And like, I guess, like, if more dominoes do fall, like where, you know, is there a place to look for these dominoes to fall? I mean,

John Maxfield  41:08

so let me just say a caveat. I mean, I don’t know I can’t really tell the future you don’t? I mean, it’s I don’t, I don’t know exactly where we’re at. I don’t know if we’re near the end, or, or where we are in that progression. But I can just tell you that from, it seems like we’re on the other side of it. Okay. Seems like we’re on the other side of it now. And then that was the result of kind of the things that the government did, it came in and said, Look, we’re gonna guarantee you, you know, the deposits of these banks, we’re gonna knock people aren’t gonna, the uninsured deposits are gonna take a bunch of losses, they opened up this term limit lending facility. So they did a variety of different things. To kind of, to kind of stem the tide. But, yeah, so I think that’s probably going to be like, it’s not the first republic is still suffering. And it’s still limping along, and it’s still kind of a TBD type of situation. And even if it survives, I think, you know, I thought it’s not going to be the first

Matt Cochrane  42:00

Republican that doesn’t come back. Like yeah, like, like, I mean, it just seems to me like if you I mean, if you’re talking about the deposits, or that were withdrawn, like, you know, on a single day, or whatever it was, you know, it’s insane. Like, I personally, like if I’m taking the trouble to withdraw my account from a bank, because I don’t have confidence in it. It’s not like a week, year later, I’m gonna be like, hey, you know what, with? I miss my old bank, let me go. Let me go back to it.

John Maxfield  42:30

Yeah, I mean, I, I was talking to a woman who’s a CEO of a real estate company that we’re friends with. And they had, they had, their, they did 25 million came in and out of it accounts on a weekly basis, just because the deals that they’re doing. And this was when it was going down, and it picks it this would have been a week was two weeks ago, or a week ago. And guys that time, I’m in a time warp. Now. This has been a week ago, when first republic was really going down. And they took I think they’d lost $70 billion in one day, in deposits. And she got in a queue to get her money, that company’s money out there on the in the wire queue. And I said, well, like what if the government comes in and like, like, guarantees everything? Are you gonna like, like, you know, stop that wire? She said, No, no, we’re gone. It says, right. It’s unfortunate, because it was it was really, really, it was a damn good bank, you know, and, but it’s Yeah, I can’t imagine it anytime soon. Certainly getting back to where it was anywhere close to where it was, you know,

Matt Cochrane  43:30

going back to first republic, you know, we talked about like, one of their, like, their Achilles heel, I guess was like having all these high, high value accounts that weren’t insured. Was that was that their mistake? Was there like bank? Like, you know, it kind of targeted these accounts? Was that like, their fundamental flaw, like going back with your strategies is flawed because it left us vulnerable to this kind of bank run? Well, it

John Maxfield  44:01

there. I mean, like, nobody’s perfect. And they made a few mistakes, which is that they never priced their loans in a way that like, that totally accounted for the risk of, I mean, you look at some of the mortgages, they made them, they’re making like a percent. I mean, like, nothing, hardly. And so they’re at some loan pricing issues that like people that are in the know, in the industry have been familiar with, for a while. And then,

Matt Cochrane  44:23

but it’s hard because it’s like, did they, I mean, if they failed, or given where they’re at,

John Maxfield  44:32

as a result of that they did something wrong, because you’re, you’re as the leaders of a financial institution, your ultimate responsibility is to make sure this thing survives, you know what I mean? And so, yeah, whether we it’s got to survive anything, including, you know, maybe unsolicited, or like, attacks are on fair, you know, survive that too, you know, and so, so, you know, there’s some culpability I suppose, there but like you It certainly isn’t anything that I wouldn’t have. I couldn’t I’m not gonna say that I would have done any better. I don’t think I would

Matt Cochrane  45:06

have. Right. Right, right. No, of course.

John Maxfield  45:08

I don’t know, Jamie diamond could have once it gotten to that point. Right. You know, what is the mistake they made? I, you know, they, you know what I mean? Like? That’s a good question. I mean, I did, because they had a damn good model.

Matt Cochrane  45:24

At least like, again, like by, you know, by by my, you know, I never invest in it. I never had chairs. I’m, you know, I’m not saying anything like that. But like, you know, he was popular, I shouldn’t say popular. But there are people on Twitter who were like, Hey, this is a good bank. And this is why, when I looked into it on a very surface level, and it seemed like, everything, like they were saying was true, it’s generally a good bank. And like I said, their customer service was was famous for just being first right all around, and how they can cater to these high worth clients, whether that’s individuals or family offices, or small businesses, like they just were nailing that market. Looking back on it, I just wonder maybe because of the counselor uninsured, if that would strategy was just fundamentally flawed, even though it was almost unforeseeable. I’d maybe it was more foreseeable, but like, you know, for at least me, like, you know, they just the victim of the crisis,

John Maxfield  46:26

when the other question is that like, so there are these devices and these products in the banking system that like, if you have, say, $20 million in deposit at a bank, that this device can spread that money through all these different automatically spread that money through all these different banks. And so you aren’t insured, but like, it’ll show a deposit, they’re called reciprocal deposit. So then, then you’ll get to 50,000 orders to this bank, and this bank needs to insure this too, and 50,000 to trade, you know what I mean? Like, now that we’re talking, I don’t know how those reciprocal deposits are accounted for in those uninsured deposit levels, because I would have a hard time imagining that, that all those customers first republic, were just willing to, like, fly blind like that without any sort of additional protection. My guess is that some of them users, I could be wrong. Right. I’m gonna look into this actually. Interesting question, but like, my guess is that some of them probably use that device. So probably maybe even at present numbers is dramatically overstated. I don’t know the answer.

Matt Cochrane  47:27

Oh, okay. Yeah. Interesting. Yeah, I’m more I love more questions than answers. But, but yeah, it’s just, it’s just interesting, because, you know, they’re not the Credit Suisse or the Citi Group, at least, you know, at least they didn’t appear to be, um, you know, one thing. One thing I’ve always said, you know, and if this current crisis, maybe throws out in doubt, you know, was, we had low interest rates for a very long time. And when I would write about banks, I was like, Well, hey, you know, if interest rates go up, that’s really good for these banks. Because like, you know, so you buy them now. And, you know, you you hold them in, if interest rates grew up, go up like that, you know, they’re gonna make money on their net interest margin. You know, was that wrong? Like, what were all these articles I wrote saying that wrong?

John Maxfield  48:24

Well, there are different there are multiple levers that are pulled on a bank’s balance sheet and p&l. When interest rates rise and fall. One of the Levers is that the securities portfolio drops in value. But you’ll they’ll they put the another level that often helps helps to offset that is that the yield that they’ll earn on their interest earning assets, like their loans, or anything else they put on, the new that they put on their book will yield more so than that’s a net positive. The other lever that higher and lower interest rates influence is that if you jack up the interest rate really high, and you make it hard for anybody who’s on a fixed rate loan to pay that loan, you’re going to increase defaults as well. And so that’s another level that the lever that factors in so it’s like, it’s just trying to get the right the right mixture of those, those levers, you know, like and how much leverage is on each lever that like the people at the banks keep a close eye on. And so they talk a lot about like asset and liability management, you want to match your assets up with their liabilities. And so that’s kind of what that’s all about. So that the answer your question is that there isn’t a simple answer to your question, right ends on how the balance how the bank is kind of set up. And,

Matt Cochrane  49:42

of course, that makes a lot of sense. Again, you know, I kind of know how you’re going to answer this but like, you know, I’ve heard some people say like, why even have regional banks like, let’s look you know, you look at Canadian, you look at Canada or some European countries where they just have like A few major significant banks, and they get by on that, why have a system where we have? I don’t know the number you probably do, but like, you know, 1000 1000s of banks across this country like why do we have that? Why can’t we just have the big four and consolidate the rest?

John Maxfield  50:19

Okay, let me show you. Let me share, show you another chart.

Matt Cochrane  50:25

So this is, oh, no, I gotta go to a different one. Actually.

John Maxfield  50:33

This is a really good one. Because this I came across this data the other day, and I was like, oh, that’s, that is really interesting data.

Matt Cochrane  50:42

Here we go.

John Maxfield  50:46

Just so you know, I prepare sheets on banks, Matt. Those are, those are bad. Those banks are parachuting.

Matt Cochrane  50:51

Alright, got it. Yeah, I like it. I like it. Okay.

John Maxfield  50:56

Here we go. So this right here is the that shows the major countries in the world relative to the number of banks. And as you can see, the United States has way more banks than even the second place. So we have about 40/502, place Russia and they have about 400. And in every house is like in the hundreds, basically. Okay. The question is, why do we have so many more banks? And that the answer that question is this? Well, let me actually show that we’re on this chart. Let me show you even another chart. So because this will help, this will help. Okay, this right here is that this shows the population that the trend in the population of banks over time in the United States. Okay. And what you see is a big buildup is starting in around the 1870s 1880s. Okay, yes, yep. That is that is the birth of disposable income. So what happens there is the of the American Industrial Revolution, and then we’re starting to ship all this stuff to Europe. So our trade balance goes from negative to positive. So all this money is flooding into United States, it’s the first time ever, that just normal people have any sort of savings. So like, I think it was like an 1882, like the average savings account have $4 in it. Just patients like whatever. 27 bucks. Yeah. Like, but there are no there are no savings. Well, that totally changed. See of the birth of disposable income taking place in the United States. This is not a banking thing. This is a human condition thing. Right? You have all that money. So so all these banks are like banks arbitrage money. So like, Well, let’s start, there’s all this money, like, let’s start a banking arbitrage on money, you know, that’s what caused that huge boom, up to that peak, which is a 1921. And then knights 21 is that’s when the drought throughout the rural America’s hits, and then losing 1000s of banks a year. And then of course, the Great Depression hits, and we lose a whole bunch of banks in the Great Depression, okay. And so then you have this period of time after it kind of bottoms out. And it is a period of time, it’s kind of like the spine or the plateau. And that’s called the Great Moderation. And that’s because there wasn’t the profitability was very pedestrian, there weren’t very many banks being formed, there were very many banks that were failing, because there was a very low risk appetite, because everybody had lived through the Great Depression. But then you have that little bump up at the end that little tail, and then it kind of comes down. That tail is caused by that came in the wake of the energy crisis in 1973. There was a buildup in Euro dollars, offshore that the banks were like, oh, like, Let’s go arbitrage that. And then that caused a whole bunch of things like the SNL crisis, the LDC crowd these crises in the 1980s, that they caused regulation change that allowed banks to bank over interstate lines and to have branches, and then that opened the way to consolidation, which is why we’ve been on a downward slope ever since then. So two points on this, the first point is that this whole bubble that you see here, this whole all that superstructure is up off that up off the the x axis right there, that is all a function of the birth of disposable income. And we’ve just been working our way backwards from that ever since. Okay, because you don’t need very many banks, because money is perfectly fungible. $1 is $1 is $1, as $1 as $1. Right. And so one of the reasons we have some panics is because we have so much competition, so everybody’s trying to one up each other and give better rates on loans and all this kind of stuff, you know, and so we’re still coming off of that. So the question is, is how far do we go? We get down to for like you said, like Canada, and we get down to like, you know, like, like Russia, how far do we go? And here’s what it’s a function of, I believe, if you look at the where the banks are aggregated in the United States, where are they? They’re in Iowa, Illinois, Minnesota, Ohio, Indiana, and why are they aggregated there? Because that’s where our, our foreign country is our best farm country is there. You have all these little farms, all throughout throughout all the states. And so why does that matter for banking? Well, when you lend on a farm, it’s very bespoke. You have have to know the farmer, you got to know the farmers kid, you got to know if they take care of the equipment, you got to know if like, what the irrigation of the water rights are like, You got to know if like looking at the land, and yeah, they may have 50 acres, but like maybe those eight acres in the back like are there’s an indentation and water collects there see that that impacts the yield of the of those acres, right? You have to know all of these things. And there’s this FinTech and all this kind of technology stuff, just it’s just not there yet, and even anywhere close to be able to do that. So what that means is that, so long as we have all these little farms throughout the United States, there’s got to be a lot of banks. But two things could change that one, either technology, or two, if in the agricultural industry, there’s consolidation down toward these big companies come and take over all these little farms, well, then those companies will spread the risk themselves, and they won’t need banks to spread the risk. So bank would just couldn’t do a big, big bank, because it’s big, make big loans to the big company, and then it will spread that risk crosses across the property. So the function of so the number of banks, United States to wrap it up, in my opinion, is primarily a function of consolidation. consolidation. Banking is primarily a function of consolidation in agriculture.

Matt Cochrane  56:13

It could it be? Could it be? Could it be like even more than that drawn? Like, like maybe like, even like, definitely what you’re saying, like, the local bank knows the lay of the land, and like, what acres are good, and just what how many acres is good on a farm, but like in Texas, maybe that’s like energy related, instead of maybe agricultural related or in, in Florida, maybe like, tourism related, you know, on the beaches, or something, and it just almost like the every locality has their strengths, and a lot of that is agriculture. 100%, but almost like, you know, you know, out west, you know, in Wyoming, it could be a ranch or something, but like, almost like, it could just be like that local knowledge of the local economy. Just goes a long way. Like, right?

John Maxfield  57:05

That’s right. And it’s because to your point, the other area, where you see these small banks dominating is that small business lending, which is also very bespoke. So, you know, there will always be a time and a place for these smaller institutions. In terms on the lending side, the question is whether they will hold up the trust and confidence on the deposit side.

Matt Cochrane  57:28

Right. John, let me ask you one more question. Since the financial crisis, I mean, growth has been, like phenomenal, right, like, last year, notwithstanding, you know, and I feel like a lot of investors, especially retail investors, worship at the altar of growth, and I don’t even like, you know, especially newer investors, and I don’t fault them at all. Because like, he has been phenomenal. And I’m not saying that’s not a factor still, like, I still think growth is like one of the key things. When I look at companies like that, that’s something I’m looking at, and yet with financial institutions, like it, you know, it’s different, right? And we’ve kind of already hinted at this, but it’s almost like, fast growth is almost like a red flag. Like, you know, I’ve heard you say, I’m gonna, I’m gonna mangle this quote. So like, when I when I, you know, please correct me, but like, you know, like every other company manages scarcity, and but banks manage abundance. So, like, is fast growth, like a red flag at financial institutions?

John Maxfield  58:40

The easy answer to that question is, yes, it’s a major red flag and financial institution. And that comes down, here’s the best way that I’ve come to think about it. And running a typical business is like being on the planet Earth. And then where the struggle is to get off the ground to jump up off the ground against gravity. That’s what the struggle is. A bank is completely opposite. It is like being on the moon. And where you the struggle is to stay on the ground, to stay on the ground. And so this is all reduces to demand dynamics, okay, you run a shoe store, you drop the price of shoes to $1 a pair, you’re going to sell a lot of shoes, but you’re not going to sell an infinite number of shoes, because like you and me only have so much room for shoes, I would buy whatever, eight shoes, whatever it whatever. Right, right? I’m not going to buy 10,000 Right? Well, you dropped the price of alone far enough and you drop the price and the terms you make them ease them up enough. I mean, like you’re talking like you can literally that demand curve will just go soon, just shoot straight up. There’s an infinite amount you can do you walk through a mathematical proof to show that it would be rational for you to be like, I would like if I can do as a Matt like I would I’ll make a loan to you for 1% interest and non recourse and you don’t have to You don’t have to pay it, you can keep rolling it over and your will. And the rational thing for you to do in that situation is and so how much do you want the rational thing for you to say is, you know what, John, I’ll go ahead and take an infinite number of dollars, you know what I mean? Right? So that is why that is why it’s you. So you can grow as fast as you want, because the demand is there. But then you what happens is you go out, you make bad loans, and then because of leverage and banking, it doesn’t take much and then you just you completely fail. Gotcha.

Matt Cochrane  1:00:28

That makes a lot of sense. You know, last time you’re on we, I asked you if there’s any, like, small banks out there that are off investors radar, we talked a little about triumph financial. Let me ask you again, like, Are there any? What’s the what’s the Jim like, what’s it? What’s one of these, like banks out there that, you know, there’s 4500 in the US, obviously, not all publicly traded. What’s another like bank that you think might be? Well, Rhonda, like investors could look at for for more research or, you know, for for more diligence?

John Maxfield  1:01:03

Well, let me say that so I again, I assess banks not only on the performance loss on the people who run them, hang them institution for savings. HFS is one of my favorites. I just like to choose it right in and out in a little suburb of Boston out in south of Boston. I just have so much faith and trust in Patrick Goggin and his father, Bob Gagan. They run banks for three generations. I just I find them just impeccably honest, and level headed people and very, very, very, very intelligent. I think they’re excellent bankers. That’s one Aaron graft. We talked about last time at trial financial, I just I think the world of Aaron graft i He is like he is an exceptional individual, like the way he thinks how he makes decisions. The courage that the courage with which he applies to job and how he does things. Let me give an example. Like when the market was really coming down hard on technology companies and his kind of a technology company, the banking space, they decided that they wanted to do their quarterly earnings calls on Zoom. And the first one they did was literally right, when all those those stocks are tanking. And so and you know, and I know, because we’ve been through this whole thing, like learning how to use Zoom in on videos, and like it just they’re the first time you do it, it’s kind of not gonna look great. And there’s nothing you can do about that, you know, but they went ahead and did it, even though they did it that quarter. And it’s just like, it was the right thing to do. Because it allows somebody like me to assess the individuals that run this thing, because I can see them you can you don’t I mean, like it’s the right thing. But it was a hard time to do it. But he went ahead and did it. And so I have a ton of respect for Aaron graft. How he does that guy named Brent beard all up at a bank in Washington is called Washington federal, just exceptional, exceptional performance. But it was actually just randomly in a close friend of mine, but it’s an exceptional bank. I get to know like the really good banks, you know, the other ones. And it’s in central bank and Britain is just he’s just a wonderful leader, just incredible guy. Everybody loves Brent. He’s the type of guy that you want to work for, and that shows through in the performance of that institution. And then the last one, I would say is the last one I would say is, I mean, there’s some private ones I like a lot but you get the vessels can’t invest in them. But m&t Bank, what Renee Jones So Renee Jones stepped into that position. After Bob Wilmers died at the end of 2017 and Bob Wilmers is like a legend among legends in the banking industry. You’re right every every publicly traded bank, my total all time shareholder return, he ranked first. I mean, he was just a legend. And so the question was, was Rene going to be able to fill those shoes, and I’ve always loved thought very highly of Rene. But like, it was almost an impossible thing to ask anybody to fill those shoes. But Renee has not only done that, I mean, it’s the way he has managed this interest rate environment is just absolutely masterful. They just sat with like 50,000,000,040 $7 billion in cash on their balance sheet. And all these analysts and all these investors, have Tom, invest that money, invest that money, invest that money, and Renee just said, we are not investing that in these securities, because we will get destroyed when interest rates go up. And look what just happened. All the banks, the United States, and it was the one I mean, it just blew everybody away. I mean, nobody was even close. And so like if, if that hasn’t proved that Rene Jones is the real deal, and really is kind of one of the leaders now of kind of this, this generation of bankers, sure. What would prove it. So that’s the last last one. That’s tip that ticker is MTB.

Matt Cochrane  1:04:29

That’s great. That’s that’s a that’s a that’s a great call. Don, thank you so much for joining us today. If listeners or viewers are interested in more and following you and reading your work, where can they find you?

John Maxfield  1:04:45

So that two places Twitter Maxfield on banks. And then I just started we’re talking to you mentioned this earlier, I started to substack and I’ve done an enormous amount of research over the past 15 months and I’m going to start rolling it out On this substack so if you are an investor in banks, you think banking is interesting, or you’re a banker, and you want to kind of really be a part of the conversation about what’s going on in the on the cutting edge in terms of like how these things are run and the performance and all that kind of stuff. This is my substack Max build on banks of sub sec.com is one that you’re gonna want to follow.

Matt Cochrane  1:05:24

And let me let me endorse that, like, you know, there’s a page here in our free tier. If nothing else, sign up for that free tier, you actually have you have nothing to lose in, like just the just a free post up right now and you just started are, are great and full of like some really great, like, overview overviews of what’s happening in like the banking industry. John, thank you so much for joining us today.

John Maxfield  1:05:49

My pleasure. Matt’s always always fun.

Matt Cochrane  1:05:53

I’m Matthew Cochrane, a lead advisor at 7investing, where it is our mission to empower you to invest in your future. Have a great day, everyone.