This month, we’ve broken down how M&T Bank makes its cash and taken a closer look at the company’s profitability. Today, we’re going to unveil this regional bank’s secret sauce.
This is the secret. The mojo. The overriding, long-term, No. 1 reason I think M&T Bank is a buy and hold.
And hold. And hold for even longer.
The secret sauceBefore we unveil exactly what makes M&T so appealing, let’s take a second to talk about what’s wrong with bank investing, in general.
Banks are in the business of selling loans or, put another way, money. Banks sell money. What a fantastic product. And the customers don’t even have to pay upfront, except for a small fee. Instead, banks allow customers to pay as they go in the form of accruing interest. For customers, that’s a fabulous deal. The demand side of the equation isn’t the problem. The problem is supply.
Banks, like the rest of society, aren’t immune to baser human flaws, like greed. When times are good, it’s just too easy for banks to make loans. Employment is high, businesses are profiting hand over fist, and cash flow moves through the system something like a waterfall.
It’s just too hard to maintain credit discipline in these times. So what if a person has a bad credit score if he just got a new job that pays a great salary? Give him the loan! This business has only been operating for a year, but it’s growing like a weed andneeds this loan to fund that growth? Read More