This has been said by Terry Smith, and reiterated in a recent FT article, but it could just as well have been said by me. He says “I think it is precisely because I understand banks that I never invest in their shares. The recent events surrounding the collapse of Silicon Valley Bank (“SVB”) and Credit Suisse reinforce this stance”. Banks are inherently highly geared and on a knife edge of instability that can be disrupted by the slightest wind.
See https://www.fundsmith.co.uk/news/2023/4933-financial-times-why-i-never-invest-in-bank-shares/ for Terry’s explanation.
From my involvement in the collapse of the Royal Bank of Scotland I came to realise that the accounts of banks can conceal all kinds of risk taking and are often simply incomprehensible. Recent events reinforce that view. Banks should probably not be listed companies in my view as normal equity investors will not understand the reality.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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