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The Buffett of Banks

Warren Buffett in the oval office with President Obama on July 14, 2010.

If Warren Buffett were a bank, which bank would he be?

(Here's a hint: It's not the one you're thinking.)

Chances are you guessed Wells Fargo (NYSE: WFC  ) . And, I might add, for good reason: It is Berkshire Hathaway's (NYSE: BRK-B  ) single largest equity holding. At the end of the second quarter, Buffett's company owned a massive 9.2% stake in the bank, making Berkshire the bank's biggest shareholder.

Beyond this, though it isn't coincidental, Wells Fargo is unquestionably one of the best managed and most successful lenders in the country. While many of its competitors have floundered over the last few years, Wells Fargo has soared, more than tripling in size since 2006.

But here's the thing. In my opinion, Wells Fargo isn't the proverbial Buffett of banks. That distinction goes instead to the Buffalo, New York-based regional lender M&T Bank (NYSE: MTB  ) .

For those of you who follow Buffett's every move, this may not come as a huge surprise. In the first case, Buffett has close ties to the City of Buffalo through Berkshire's ownership of its primary newspaper, The Buffalo News.

And like Wells Fargo, Berkshire owns a large chunk of M&T's stock -- or 4.1% of its outstanding shares, to be precise, making the financial conglomerate the sixth largest shareholder in the bank.

Source: M&T Bank.

On top of this, Buffett has a well-known admiration for M&T's chief executive officer, Robert Wilmers. As The Wall Street Journal pointed out earlier this year, the two executives "talk on occasion and ... Mr. Buffett also has praised Mr. Wilmers in his own shareholder letters and suggested that investors read the M&T missive."

But even more than these somewhat superficial connections, there's a deeper kinship that exists between M&T and Berkshire, one that goes to the very core of their decades-long philosophies about growth and how to conduct oneself in business.

The bank's chief financial officer Rene Jones touched on this in his presentation at this year's Barclays Global Financial Services Conference:

So if you kind of understand our ... acquisition strategy, it's one that I would characterize as opportunistic. So we own a fair percentage of the firm, so we tend to be relatively conservative. And if you think back to the transactions that have happened, they've really happened to us. They've set a footprint need or they've sort of come at a time when we were very healthy and the other institution might have been having difficulty.

If you look at our board today, I mean, our board is made up of people who have decided to join M&T. And you kind of look through that, you can see the membership is not necessarily people who've sold their institutions, but people who sort of have decided to merge their institution in M&T and continue in the banking industry.

Like Berkshire, M&T has grown through acquisitions. But unlike its peers in the banking industry, it's done so prudently.

When Bank of America (NYSE: BAC  ) was effectively flushing future earnings down the toilet via its purchase of Countrywide Financial, M&T was standing pat -- for the record, the Countrywide deal has since cost the nation's second largest bank by assets upwards of $50 billion to digest.

And when things got cheap, M&T pounced, swooping up its regional competitor Hudson City Bancshares (UNKNOWN: HCBK.DL  ) for 77% of book value -- the transaction is still working its way through regulators but is expected to be approved.

Moreover, as Jones' comments touched on, M&T has shunned the variably popular style of hostile takeovers. Like Berkshire, M&T has made itself somewhat of a destination for ailing companies that are looking for a friendly port in which to drop anchor.

Perhaps most of all, however, is the fact that M&T counts itself on the very short list of companies that have performed for shareholders to the same extent Berkshire has.

Since 1980, M&T's stock has achieved a compound annual growth rate of 19.8% (assuming reinvestment of dividends). Only 21 other publically traded companies have done better over this stretch. And it just so happens that one of them is Buffett's beloved Berkshire.

These are the reasons that M&T is the Buffett of banks.

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