Double Dipping

As I’ve mentioned previously, part of my inspiration comes from articles over on SA.  This week is likewise in this vein as one of Nicholas Mushaike’s articles struck a nerve.

I don’t expect to be following in his footsteps as the Asian companies are too foreign to me and the semiconductor industry too cyclical.  But the gist of the article highlighted some parallels with my investing approach that I decided to present in today’s blog.

As anyone reading my blog knows, a portion of my portfolio resides in financials, primarily regional banks. There are two ways I’ve found to capitalize on relationships.

  • The first is through client business relationships.  For example, DST has a relationship with Wells Fargo for receivable financing.  I profit (through dividends) from this.  Wells Fargo has business relationships with same of my other holdings (FAF, WEC, JNS).
  • The other way is to invest in what I refer to as publicly traded “banker’s banks”.  One example is PNC who provided financing for WSBC‘s acquisition of ESB Financial.  A more recent example is CFR providing financing for FFIN’s acquisition of FBC Bancshares.

By monitoring SEC filings you can become aware of these types of relationships.  Unfortunately, on merger financing the target is not disclosed – but still, it is profitable lending which is a driver of dividends.

Different from Nicholas’ approach – yes.  However I do believe the apple hasn’t fallen too far from the tree.

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