Under-the-Radar "Banks" Hiding in the Dow Industrials

We all know the Dow's true banks -- JPMorgan, Goldman Sachs, and the like. But did you know there are others, hidden away, with billions and billions of loans as well?

Jul 18, 2014 at 1:00PM

As of March 31, 2014, the FDIC reports that there were 6,730 banks in the U.S. Of those, only 107 have total assets greater than $10 billion. Three of the biggest banks are components of the Dow Jones Industrial Average (DJINDICES:^DJI)(DJINDICES:^DJI).

Banks are naturally associated with debt. We take out loans to pay for homes or cars or even our educations. The banking business is, in most ways, the business of debt. But that doesn't mean banks are the only entities that run debt-centric operations. In fact, some non-bank companies have massive debt portfolios.

GE Capital -- The one you've probably already heard of

Ge Fool Flickr

General Electric (NYSE:GE) is by nature a conglomerate, and within that conglomerate the company has a finance division, GE Capital. This division makes loans to individuals, businesses, and everything in between. It finances homes, cars, working capital, and even airplanes.

GE Capital alone produced $10.5 billion in revenue for the quarter ending March 31. That translated into almost $2 billion in net income. The division has total assets of -- wait for it -- $510 billion. Believe it or not, GE Capital is the eighth-largest bank holding company in the U.S.

But GE Capital is a little too obvious. Let's move on to some other examples that don't immediately come to mind.

The $8 billion finance company headquartered in San Jose
Would you believe it if I told you that Cisco Systems (NASDAQ:CSCO) has an $8 billion portfolio of loans and leases? Would you be even more shocked if I told you that at this size, this "bank" would be the 125th-largest in the U.S.?

Well, it's all true. Cisco has about $8.2 billion in credit receivables, which would land it between First Citizens Bank and Trust of Columbia, S.C., and First Midwest Bank of Itasca, Ill.

Cisco Logo

The trick here is, of course, that many manufacturers offer their own financing to help customers purchase their high-end wares. Cisco is one of many large companies with large books of credit.

Cisco offers leases and loans to assist customers with purchasing its networking hardware and other offerings. Generally, the company offers four-year terms for leases and three-year terms for loans. Cisco secures the credit with collateral; just like your mortgage uses your home as collateral, Cisco uses  the equipment it's financing to secure the loan or lease to the customer.

And the list goes on
(NYSE:CAT) is a great example within the Dow Jones Industrials. Beginning on page 10 of the company's most recent quarterly filing with the SEC, management spends eight full pages discussing the business's $21 billion loan and lease portfolio. The discussion includes banking jargon like "troubled debt restructures," "non accrual loans," and an "allowance for credit losses." If you stop paying attention for just a moment, you may mistake that particular 10-Q as an actual bank's filing!

How much do these financing segments matter?
For a company like General Electric, the well-being of it's finance division matters a whole lot. GE Capital is simply so massive that both the profits and the risks that stem from it have a major impact on the profitability and health of GE as a whole.

For other companies, like Cisco or Caterpillar, the impact is much less significant. Cisco has total assets of over $100 billion and a market cap in excess of $132 billion. Relative to the total enterprise, Cisco's finance portfolio is somewhat marginal.

Caterpillar stands somewhere in the middle. The company has about $85 billion in total assets, and as a percentage of total assets, the financing portfolio is surprisingly large at about 20%. That said, the significance of that portfolio is nowhere near the importance of GE Capital to GE.

The Foolish takeaway
The deeper you dive into a potential investment, the more you'll learn about the business that you may not have otherwise known. Sometimes these discoveries are simply curious -- and sometimes they make the difference between a buy and a sell.

These customer finance units are common, and in general they exist far on the periphery of the business -- Cisco's market cap is about 16 times larger than its full book of loans and leases. And yet, when you read about this little bank-like creature hidden within Cisco, it still sounds a whole lot like simple, old-fashioned banking, even for a high-tech networking company. Its further proof that the deeper you go, the simpler it gets -- all the more reason to do your homework.

Bank of America + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here

Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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