The Garrett, Watts Report (November 20, 2009)

To Our Clients, Colleagues and Friends,

· At mid-year 2009, the three top banks held 53% of all deposits in California . Here are the top six, which collectively hold 65% of all deposits in the state.

1. 24.5% BofA

2. 19.2% Wells Fargo

3. 9.6% JPMorgan Chase

4. 5.5% Citigroup

5. 3.5% Mitsubishi UJF

6. 3.4% U.S. Bancorp

A year ago, Wamu was #3 with 14% and World Savings was #4 with 5%. Things change.

Okay, here’s how you pay for college in 18 years, based on what Paul Tuttle suggested when Hannah Garrett was born. (1) Figure out how much money you’ll need, and (2) buy enough zero coupon bonds that mature in 18, 19, 20 and 21 years to fund that amount. If you need, say, $100,000 in 18 years, you can buy $100,000 U.S. Treasury Zeros today at about 42. This way, you’ll write a check for $42,000 and know that in 2027 when your son or daughter becomes a freshman, the bonds will mature at $100,000. Do the same thing for each year, and as that guy says on late night TV, “Set it and forget it.” The higher rates go, the cheaper the bonds will get, so be sure to schedule your baby’s delivery when rates are really high.
Hannah Garrett was astute enough to be born in 1991 when Treasury rates were about 8%. At that time you could buy $100,000 of zeros for about $31,000. This was one insightful baby, and her college bonds start maturing this year. This is all thanks to Tuttlenomics.
We were on a local freeway yesterday when traffic came to a halt. Maybe 20 feet away was a downed motorcycle, with the motorcyclist sprawled dead on the freeway. Things like this are disturbing on many levels and remind us of how fleeting life can be.

· In an act of great charity, the FDIC has stopped issuing Cease & Desist orders. They think it scares the public! Instead, the kinder, gentler FDIC will now call them Consent Orders. This, of course, is because the opening sentence has the Board of Directors signing a document in which they consent to receive a C&D. People, a Board consenting to a Cease & Desist Order is like a man on death row consenting to a lethal injection. And the best part (we’re being sarcastic) is that if you appeal it, it will be called a C&D and not a Consent Order. Is this a great regulator, or what?· Did you know that at California banks under $100 million, only 25% of all CEO’s have their country club dues paid for by the bank? If the bank is over $1 billion, 83% have their dues paid for. This should make it obvious where you want to work. At the smaller banks (under $100 million) the average CEO salary is $192,000. At a billion it goes to $482,000.· And what about Chief Financial Officers? At banks under $100 million, the average salary is $131,000. Once you get over $1 billion, it goes to $259,000. Quite seriously, higher salaries with increased size often, in our view, could be a very real reason why bankers grow their banks.· But what about Board members? Why would they want to see a bigger bank? At under $100 million, only 13% of the banks pay Director Fees, at an average of about $290 per meeting. Once you get to $1 billion, fees go to about $1,080 per meeting.· Do you ever feel overwhelmed with reading material? Pre-internet and e-mail, you read your daily newspaper, maybe 2-3 magazines a week, and the rest of the time was reserved for reading books. Now, you start the day with 100 e-mails, blogs, stuff people send you, etc, etc. etc. You really need to fight to have time for books, but there’s really nothing quite like having a perfect book you can’t wait to pick up and read. We’re re-reading An American Tragedy, and it’s that kind of book.· Forty years ago on Sunday, President John Kennedy was assassinated while on a motorcade in Dallas . Strangely, Aldous Huxley and C.S. Lewis both died that same day. Both were enormously popular writers, but their obituaries were very small stories buried in the back pages. If you have to die, it’s useful to do it on a day when there isn’t much else happening in the news.
· A long. long time ago we wrote down the ten things we thought people should learn from going to school: (1) Discipline and perseverance, (2) tolerance and compassion (3) how to make friends (4) honesty (5) courage to deal with the unknown (6) curiosity (8) ability to have fun (9) introspection (10) taking responsibility for your actions (11) a love of reading and (12) a sense of history. And long after you’ve forgotten what a cosine is or how to conjugate French verbs, won’t these lessons still be with you?· And isn’t it amazing that Google, which didn’t exist as recently as 1997, generated $22 billion of revenue last year? This is the sort of thing that makes us so optimistic about our nation’s future. When people worry about what America will do, now that we’re not really a manufacturer anymore, the answer is “No one knows, but no one knew that Google would come along when it did.” As long as we have entrepreneurs, the profit motive will continue to create new businesses that create jobs and wealth.· And how about that Manny Pacquiao? Have you ever seen a tougher boxer? He goes out and beats the hell out of Miguel Cotto, sending Cotto to the hospital, then goes to a nightclub where he performs late into the morning with his band. We saw Oscar de la Hoya in a few fights and never saw someone as tough, but Pacquiao beat the absolute stuffing out of him a few months back. This guy Pacquiao just might be a smaller version of Muhammad Ali.· When we wrote about the types of risk financial institution faced, we got a ton of suggestions. We can’t go into them all here for lack of space, but thanks, Peggy, Herb and the rest of you who wrote in with your thoughts on risk management.· We waste lots of time looking up statistics on the Oakland A’s, even when they were in Kansas City or Philadelphia , so here’s a doozy. On April 22, 1959, the White Sox held an 8-6 lead over the A’, but they went on to score 11 runs on only 1 hit in the 7^th! That inning featured one single, two players reaching base on errors (plus an additional error), a bases-loaded hit batsman, and 10 walks, 8 of them with the bases loaded. The A’s outfielder that day was Roger Maris who was probably so disgusted that he decided then and there to get traded away, preferable to the Yankees.· What’s up with TARP? The government has invested $204 billion in banks, has been paid back $71 billion, and has received $10 billion in interest and dividends.· What would happen if you lost your Blackberry, i-Phone or cell phone? We’d suggest typing up your name, your e-mail address and home or office phone number and then taping it to all these devices.· Here’s the most amazing short surfing video you’ll ever see. Skip the intro button on the bottom and get right to it. It’s a 40-50 foot wave, maybe from Mavericks: http://www.metacafe.com/watch/4684/amazing_wave_surfing/· We just finished the Due Diligence involving a $2.0 billion mid-west bank buying a mortgage banking company. We covered finance, operations, secondary marketing, systems, and countless sub-areas, along with due diligence on their servicing portfolio. One of the main attractions to the bank was that the servicing department has $25 million in DDA impounds.· We just saw the perfect movie, perfect in that it’s perfect for a first date, a last date, college kids, a married couple, a father and his daughter, a son and his mother, you and your grandmother, people with tattoos and piercings, and people disgusted by tattoos and piercings. It’s Forget Paris starring Bill Chrystal. Very hilarious, sweet, romantic, and very engaging. See you next week, maybe once before Thanksgiving.Garrett, Watts & Co. Helping mortgage lenders increase revenues, control costs, and better manage risk.