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Tuesday, June 07, 2005

Wintrust Financial (WTFC)

You'd think that with all the startup community banks I've been looking at, that WTFC would be the perfect investment. They create/purchase lots of startup community banks. Their results look absolutely wonderful: earnings each year of: $9.4, $11.1, $18.4, $27.9, $38.1 million from 1999 to 2003 (2004 is another banner year).

There's a lot of really great results they have to show me.

Just one problem. They don't pass the smell test. I could be wrong, but I don't trust companies that take in large amounts of cash every year from investors to rapidly expand. When that happens, it's possible to build something like a Ponzi scheme where new cash and new investments and new deposits can cover up ugly old investments and deposits. Net interest margin has been steadily declining over the years. A lot of little clues that I see on their website and in their reports give me the creeps. They remind me of shady used car dealers. And if you look at their cash flow statement, a huge part of it is buying and selling massive amounts of mortgage securities.

No, thanks.

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