We all know that the banking sector is undergoing a tough time at the stock market. Customer dissatisfaction with some banks is at an all – time high. Lots of external factors like interest rates, non-performing assets, non-payment of loans by customers etc. have affected the banking industry quite harshly. In the midst of all these challenges, there are few banks whose stocks look good for a decade at least. They are discussed below:
Targeting high-net worth individuals
In the list of banks that look good for another decade, the first position is occupied by a bank that has around $46billion worth of assets but only 71 offices. We are talking about the First Republic Bank (FRC, Financial). Headquartered at San Francisco, First Republic has only 7 branches in the east and west coasts. Its customers are highly affluent; hence the bank doesn’t face the risk of non-payment of loans. Most of the customers are high- profile entrepreneurs. The bank is able to retain these super successful and rich people as its customers because of its high class customer service and personalised attention. Around 81% of the income earned by the bank comes from the interest income received from these affluent customers. The other 19% of non-interest income is broken down into the following categories:
First’s Republic Bank is an excellent lender of mortgages and this forms the main business of the bank along with wealth management and trust management fees. It is not into any risky departments like sub-prime lending, proprietary trading, equity or hedge funds. Hence it has a very stable portfolio that is aimed at increasing shareholders’ worth. As of now, share prices have come down, making it the right moment to invest in them. Their portfolio is looking good for at least another decade. The share price trend of First Republic Bank for the last few months is seen below:
Excellent control over risk management
The second bank that has a portfolio to please investors for another 10 years and more is M&T Bank (MTB, Financial). This bank is the best in the industry when it comes to managing risk and expenses. The bank plays its cards very safely and does not enter into risky territories even during a booming economy. The returns of MTB over the last few years are seen from the chart below:
The following table sums up perfectly as to how M&T bank outperformed the S&P 500 Index consistently for the years of 1980, 1990, 2000 and 2010.
The price changes of M&T bank when compared to the S&P 500 Index price % changes are evident from the chart below:
The above charts provide enough data to prove that M&T Bank is a valuable proposition for the next 10 years and even more.
Consistency and stability are the buzzwords
The third bank in this list is one that has a very stable portfolio that provides consistent returns to its investors. It is the Wells Fargo (WFC, Financial) bank that has been delivering excellent results for the past 35 years and has all the potential to deliver the same for even more years to come. The fact that one of the biggest holding companies in the world Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) holds close to 463million shares in the bank explains the success of Wells Fargo. Since the portfolio of the bank is absoltuely risk-free, has a high return on its assets and manages its business very efficiently, this is one of the top picks of the banks that are good to go on for another 10 years.
Conclusion
It is very difficult for banks to sustain in the highly volatilie environment of the stock market and to ward off the stiff challenges presented by the economy. These top banks have figured in this list because they have some niche characteristics and policies that they just didn’t compromise upon, irresepctive of whether the economy was good or bad. Strict adherence to their core business values has put them in the place that they are in right now. Investors can blindly invest in these for long term returns.
