Author Topic: Q4 2008 13F  (Read 12035 times)

prevalou

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Re: Q4 2008 13F
« Reply #30 on: February 18, 2009, 08:54:43 AM »
In my calculations, I forgot the other assets. For instance Wells has 864 billion$loans and 1300 billion$ assets. But with 10% losses on loans i assume other assets will come clean.


ShahKhezri

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Re: Q4 2008 13F
« Reply #31 on: February 18, 2009, 09:17:46 AM »
I think some people are just missing the point here.  You can't talk about asset losses without the implications of depoit growth, it's not one or the other, they are joined at the hip.  If you take the concept of "money flowing to where it is treated best" on a banking level, do you honestly believe other bank-like institutions are going to be able to offer CD's like the Houston outfit that just blew up?  Banks are going to be doing a lot more of what they were created to do.  Now surprisingly, the only CC out there with the most sensible answer to what exactly is going to happen in the intermediate future was from BB&T, here is a great excerpt:

Nancy Bush - NAB Research, LLC

Yes, my follow-up question is this. And I realized it's probably a little early to be looking to the other side of the thing we're going through right now. But when you're looking at the developments in your credit portfolios, I'm sure you're sort of going through a mental okay, could we have done this better, what could we have done differently. What are the implications here for the future, particularly as it comes to financing residential real estate development, etcetera?

Kelly King

Well, I think that's the key question to me that everybody ought to be asking. The way I frame that is, what does the economic engine look like going forward? Here's an interesting thing Nancy, to me, and you may not agree with this. But I think it's rational. I mentioned earlier this 20-plus year period of disintermediation as huge amounts of assets left the banking balance sheet and went into the capital markets.

That's gone for a long time; it may be back one day. I think it's gone for a long time. We also, by the way, saw it on the liability side. We saw huge amounts of traditional deposits, CD type deposits leave our system, go into mutual funds and very sadly, nothing wrong with mutual funds; we manufacture them.

But very sadly, particularly senior citizens say, well, I would never put my money at risk and put it in the stock market. I'm putting it in mutual funds, and never even understand what they are doing. So now they've lost a lot of their money they were counting on to live on. You are seeing that money come back in the CDs, albeit at lower rates. So we're getting more deposit inflow at lower rates. We're getting more loan inflow at higher rates. Spreads are improving, they will continue to improve. So I think going forward, even with lower aggregate economic activity, which I believe will be the case, good banks will have very good balance sheet growth and very good spreads resulting in very good margins.

Now, I don't think any of us ought to be sitting here thinking about going back to the 90s and looking for 15% to 20% growth rates. I don't think that was healthy then. It wouldn't be healthy now and it's not going to happen. But for the first 10 or 15 years of my career, if you could grow loans 6% to 8% deposits in the same kind of category and get good pricing and control your costs, you could make a lot of money. And I believe we are heading into that period.

Once we get through this cycle, 12 to 18 months, we are in for 8 to 10 years of really good operating conditions for good spread lending institutions like us. Now, some institutions that had, way over half of their income coming from C businesses, but the kind of C businesses in the capital markets, etcetera, that have evaporated or they had the strategies of buying all their business around the world, those strategies didn't work and they won't work. Our strategy has not changed.

And so as the markets slowly improve, the volume will improve. We'll get market share move from this re-intermediation and we specifically will get market share move, for at least two or three years. We have the Wachovia, Wells things. Wells is a good institution, but not as good as us, but they are a good institution and it will take them two or three years to get settled down. We've done enough mergers to know. I mean you just don't do it overnight.

Now you have got to be in a bit of [mirror] thing, I mean, and who knows where that's going. But in terms of capital markets business and wealth business, looks to me like a lot of opportunity is out there, not to mention some of our other competitors that certainly have their own challenges. So, I think Nancy, as I look forward and I've tried to be brutally honest with myself about this, I really believe when we get through this, we're going to see some of the best times in basic commercial banking that we've seen in a long time.

Nancy Bush - NAB Research, LLC

Okay. And get here soon enough.

Kelly King

Yeah, amen to that.

http://seekingalpha.com/article/116009-bb-t-corporation-q4-2008-earnings-call-transcript?page=-1

benhacker

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Re: Q4 2008 13F
« Reply #32 on: February 18, 2009, 09:24:20 AM »
Thanks for posting this Shah.  I think BB&T is indeed the best managed bank, and his words about Wells are true.  I think 2-3 years to integrate Wachovia is realistic.

The core economics of 'good' banks is improving rapidly.  As Mungerish said, Q1 should be good, and there may be some positive credit surprises due to the Refis.

Lots of uncertainty here, but if you want to protect against disaster, I'd just buy Wells with a out of the money market put.  Assuming Wells goes under is assuming a depression, period.  and I think that is totally hedgable.

Thanks,

Ben
Ben Hacker
Beaverton, Oregon - USA

Parsad

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Re: Q4 2008 13F
« Reply #33 on: February 18, 2009, 10:25:07 AM »
If you own a bank that is in decent shape, or are starting one, the spreads between deposits and loans are fantastic.  Banks that are growing their deposits like Wells, M&T, etc. are going to do very well going forward, even if they do have the occasional hiccup from their loan portfolio.  I think the really tough time was a couple of months ago.  Going forward with the options banks have, the spreads they are getting, the quality of business they are now forced to write, the industry should start to do better.  Cheers!
No man is a failure who has friends!

benhacker

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Re: Q4 2008 13F
« Reply #34 on: February 18, 2009, 10:54:58 AM »
So I just glanced at the Wells 1992 financial info, and I really don't see the drastic difference today in term of the ability to withstand losses.

Then (Q4 1992):
~$25B in loans
$1.7B in 'buffer' (6.8% of loans)
$2.8B in common equity (11.2% of loans)

Today (Q4 2008):
~865B in loans
$21B (+$37B) = $58B in 'buffer' (6.7% of loans)
$68.2 in common equity (8.0% of loans)

Big difference is that there is a lot more preferred equity these days at Wells (due to WB acquisition mostly).  I'm not sure how different the numbers would have been for 1991 etc, but I doubt much.

I think it's also worth noting that Wells' core business locations have been leading the economic downturn so they are if anything further along the process than many other banks.

Just my 2 cents.
Ben Hacker
Beaverton, Oregon - USA

prevalou

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Re: Q4 2008 13F
« Reply #35 on: February 18, 2009, 12:45:14 PM »
thank you for the info.
If I remember, cash flow in 1992 was about 5% of loans. Then even after 10% losses, shareholders equity would have been largely enough.
Today, it depends if the buffer includes the 37B$ already written off. I prefer to be careful about it and consider the buffer to be 21B$, the 37 B$ written off being very very bad loans (not Wells Fargo standard), but maybe I am wrong.
Another difference versus 1992 is that half the loans were not issued by Wells Fargo but by Wachovia. I am not so sure about their lending criterias.