Investing in Banking

Profiting from the World's Other Oldest Profession
May 4, 2007

I'm starting to really give Southeast Asian banks a serious look.

This is a very hard concept for me to convey, but let me give it my best shot...

Banks themselves are very sensitive issues. No one ever feels comfortable walking into a bank. You see it all the time.

Have you ever noticed how quiet banks are? There's no written rule that you can't chat in a bank the same way soccer moms gossip in grocery stores. But do you notice that no one ever makes a peep? Banks create a silent hush that most Sunday church services would envy.

And this phenomenon doesn't exist because we hold some sacred reverence for our beloved financial institutions.

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We're quiet because we're scared. We stand between those metal ropes with the apprehension that St. Peter himself rests at the end of the line, prepared to make the final judgment on us.

We size up the people around us. We think to ourselves: "Does he know I only have a couple of bucks in my checking account?" Or, "I bet she doesn't have more than me."

What must that teller be thinking when we she punches that 13-digit account number into that all-knowing computer? I bet she's laughing at the fact that I spent $250 on that 8-minute abs tape and I still look like I swallowed a tire...

There's no denying it...a bank's atmosphere immediately places you on the defensive. Banks project power and greed. It's their fundamental nature.

One goes to a bank to beg...to ask for a loan. In return, a bank tells you what you're worth, down to the very last penny. They spit out a credit score as if to say: "Johnny Smith, you're 623 means we can only loan you $25k. I know you needed much more, but I'm sorry, that's all you are worth."

A bank infringes on a man's pride. It inherently conveys some type of God complex in the financial world. It's because all finance begins and ends with banking.

This sensitivity issue means one thing: People don't like to bank with something they fear.

And what does just about every person living outside of the continental United States fear most? It's not Al Qaeda, Iran, Vladimir Putin or Israel. It's not Hugo Chavez or another international currency crisis. They fear the bully. They fear American imperialism, in whatever form that force may come. They know we own the IMF, the World Bank and the bombs to obliterate anyone who stands in our way.

They see our attitude. They know we don't know what it's like to have a war on our very own soil. To us, war is CNN. War takes place over a cup of coffee on the 60-minute Long Island commute into New York City.

People fear what they don't understand...and most people living in foreign lands fear what we bring to the table.

So do you think one person in Asia feels comfortable placing their money in an institution called "Bank of America?"

The same logic can be used for most Americans. Do you think Johnny Smith from Topeka, Kansas would ever place the proceeds of his latest corn crop in the Bank of China?

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Rhetorical question, I know, but the fact remains... Asia is creating personal wealth on a level that the world has never seen. And that money has to go somewhere. It will go into the banks of which 99% of Americans have never heard...names like HSBC, Standard Chartered and DBS.

I think the big American names like Citigroup, JP Morgan and Wachovia know this. Their strategy will be to take large equity stakes in their Southeast Asian counterparts. I think that's a good strategy.

And over the long-term, you'll probably see the Asian banking community consolidate in a similar manner that the U.S. commercial banks did.

I think there are a slew of Southeast Asian banks poised for real long-term growth. As Christopher Browne points out: "The average person views banks as stodgy, old economy relics...but what would we do without ATMs, debit cards or credit cards?"

I agree with Browne... Banks are one of the few growth stocks I love to own...it's the world's other "oldest profession."

Until Next Time,
Christopher Hancock

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