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Private Lending (2) – What Did I Discover?
Last time I mentioned that after I switched jobs to the nearest bank from home, I started reading through the source files, studied the business sections and numbers to figure out how they make money. So, what did I discover?
Before that, a little gossip had helped me a lot. I had just joined, and the management was constantly praising the bank’s stock performance, mentioning the shareholding structure. The bank was founded by a retiring lawyer many years ago, and after going public, there were still many shares, all of which would go to the founder’s only daughter in the future. What did the daughter do? She had her own sizable fund, engaging in business that the bank itself didn’t.
I only half-listened at the time, not giving it much thought.
But when I saw the disclosure documents, it all clicked! There was a specific section detailing how this quasi-bank ensured compliance (after all, wanting a banking license required stringent compliance; it was a case of damned if you do, damned if you don’t. Many years later, it got into a regulatory crisis, Buffett came to its rescue, made a big profit, and the founder was kicked out of the company by the board, and the nearly 90-year-old founder trembled outside the company while trying to pick up a letter. Yep, so many stories in the capital market!), which specifically disclosed how this quasi-bank handled non-compliant loans.
The process was practically a roadmap. Their non-compliant borrowers were referred to a fund, and if I guessed correctly, it must be the founder’s daughter’s fund! So, I followed the trail, started looking into that fund, looked for information about its operations in disclosed documents, especially regarding revenue streams and profit margins. Upon doing so, I immediately realized that I might have found a path! Their operating methods were accessible to everyone! Specific details will be discussed next time!