Buffett Bullish On Banks: Wells Fargo & Company (WFC) and More – Should You Too?

Risks Remain

On the contrary, many regulators, financial analysts, and former bank executives opine that banks are still a threat to the economy. Many banks have yet to split their investment banking operations from the deposit-taking and lending segments, and this implies that depositors may be directly affected by the risks in investment banking. Shareholders are at a loss since short-term results appear to be better than long term profits, and it poses the question of whether or not managers’ decisions are in their best interest. Excessive risk taking and investing in short-term goals may result to great profits now but a crisis in the future once those decision makers have left the institution. CLSA’s analyst Michael Mayo spoke about the many incentives that spurred risk taking prior to the financial crisis that have not been addressed. According to Mayo, “Twenty years of incentives that were out of whack have not been fixed.”

Troubled Asset Relief Program’s former inspector general Neil Barofsky also holds an opinion that contrasts with Buffett’s guarantee regarding banks. Barofsky expressed concern over the trading losses made by JPMorgan Chase & Co. (NYSE:JPM) and the obscurity that is associated with large institutions, although banks still merged to form larger institutions during and after the financial crisis under the pretext that they would be too big to fail. According to Barofsky, “It’s really almost impossible to tell where those risks are.”

Conclusion

Mr. Barofsky is right to question these firms, and investors seeking excess returns should look elsewhere to other stocks whose financial statements are more meaningful.

The article Buffett Bullish On Banks – Should You Be Too? originally appeared on Fool.com and is written by Bill Edson.

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