Former Pimco Chief Investment Officer Bill Gross, who gained the moniker “bond king” for his stellar fixed-income investing, isn’t too fond of bankers.
“Lend money that isn’t theirs, charge you interest on it, foreclose on your home if you don’t pay it, accept a handout from the government when they get into trouble, and then perpetually complain about bonuses and regulation,” he wrote in his latest investment outlook.
“Poor babies! Would they prefer to be a truck driver?”
But that view hasn’t stopped Gross from buying regional bank stocks recently in the wake of the financial turmoil that included three bank failures.
“I’ve always told myself and close friends that I wish I could start a bank,” he wrote. “It’s a license to make money even when run conservatively.”
Regional Bank Pain Can be Gross’ Gain
Of course, “some [banks] in recent months have hit the front pages when they weren’t so conservative – like Silicon Valley Bank,” Gross notes. “It produced a moderate financial crisis, cratering the market prices of regional banks deemed susceptible to withdrawals of deposits.”
“As a result, many regional [bank stocks] are down 30%-40% since, and it’s possible to own (or in effect start) a bank at 60%-70% of book value.”
To be sure, regional banks will get into trouble if a recession arises, Gross said. “But my long-time wish to own a bank is now possible via public markets. Recent returns on equity of 9%-10% at 60% of book value provide an enticing long-term investment.”
In addition, many smaller regional banks may be purchased by larger counterparts at hefty premiums over their share prices, he said. “I’ve become a banker by proxy.”
Gross’ recent purchases include Western Alliance Bancorp (WAL), Synovus Financial (SNV), PacWest Bancorp (PACW) and SPDR S&P Regional Banking ETF (KRE).
Gross Boos Central Bankers
He offers some choice words in the newsletter about other topics too. Here’s what he thinks of central bankers.
“Create money out of thin air, move interest rates up and down pretending to be prescient, yet fail to regulate the industry they oversee [banking],” Gross said.
“When yields get to 0%, they buy bonds at superficial prices in order to fund the Treasury, and generate profits for their owners (the banks).”
Further, central bankers “perpetually claim to be concerned about inflation, unemployment, and Main Street in order to justify their independence,” he said. “But Wall instead of Main is typically their focus.”
Gross adopts a somewhat different tone when assessing himself. “One lucky dude, who tried to pay some of it forward at Pimco,” he said. Gross was co-founder of the firm.
“In my 40 years [there], I/Pimco team probably made a lot more money for others than myself. Morningstar once wrote that I and the Pimco team made more money for more people than anyone in history.” To be sure, he acknowledges that may be “a stretch.”
Gross outperformed the bond market for years as head manager of the Pimco Total Return fund. And he certainly did make a lot of people a lot of money. But does he really have to advertise that?
