Barclays Bank PLC (BCS-N)

Best European bank? European banking is difficult, given negative interest rates. Best in class is Barclay's for its investing banking business or Lloyd's Banking. There should be more consolidation here, but it's difficult in Europe (look at ATD'B trying to buy Carrefour this month).

Likes it. They bought Lehman, which had investment banking but was really a bond house, so Dodd-Frank caused a lot of capital issues and restrictions. New management is doing a good job by sticking with investment banking and have a great retail franchise in the UK, and they exited businesses around the world that didn't work out. They're going all the right things, though Brexit creates uncertainty. Great credit card business. It will do well, but have to get past Brexit early next year.

He owns other European banks instead. It has 25% of the business in Spain. With interest rates low, it could be poised for a good future once the yield curve normalizes.

He compared it to Deutsche Bank, which he also does not recommend. He thinks they rely on lines of business that will do worse in the future. They were a leading distributor and manufacturer of mortgage-backed securities. “We’re really talking here about Lehman Brothers.” The way the MBS works, conforming MBS doesn’t offer much margin. Subprime and Alt-A were so important because they attract a lot of margin, but those are now out of the mix. He likes the people who work at Barclays, but he would rather put his money in JP Morgan. All the non-American banks are subject to base erosion tax, which raises their costs. JP Morgan and other American banks are not. Brexit also puts the larger American banks into a good position to take share in the European market.

Prefers Deutsche Bank (DB-N) because it is so much cheaper. Barclays has a whole bunch of other issues on its own. It has had some management issues over the years. Thinks you are best looking elsewhere.