Author Topic: WFC - Wells Fargo  (Read 271342 times)

Schwab711

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Re: WFC - Wells Fargo
« Reply #830 on: December 17, 2018, 12:24:28 PM »
What's the basis for this assumption though?  Not the direction of "up" (which is a reasonable assumption), but the magnitude and specificity of the $400B number?

WFC is at $320b and BAC is at $500b so I split the difference haha. According to BAC's quarterly LCR, operational risk is based on failed internal control processes and the like. Without knowing how they calculate this, I'm just assuming a round number in a direction.

This is partially why I like BAC more at this moment (though WFC is probably less risky overall). I think BAC is going to be over-capitalized by more than it appears they are today. I never liked BAC much compared to JPM/WFC, but I can see a relatively clear path to 13%-14% ROE (or near-20% ROTCE).

I did forget that moving up RWA is based on my assumption that they can improve NIM slightly in a steady-state rate environment. That's a good point that reduced buyback capacity means less reliance on buybacks to increase earnings.


Rasputin

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Re: WFC - Wells Fargo
« Reply #831 on: December 17, 2018, 12:51:31 PM »
I'm gonna put an end to these 2 madness:

1.  Asset cap to WFC is damaging to treasury management business, will cause reduction to NIAC (net income available to shareholders), and 2.  Operational risk within WFC RWA

1.  There is another $2 Trillion GSIB with self impose asset cap (without publicly announcing it).  It's called Bank of America.

Year End  Total Assets ($ in billions)
2010        2265
2011        2129
2012        2210
2013        2102
2014        2105
2015        2144
2016        2188
2017        2281

BAC basically self imposed asset cap for roughly 7 years, while global transactions services (includes treasury management) grew from $5.743 B in 2012 to $7.188 B in 2017 (they had a reorganization in 2012 so prior data is not comparable).  Please go to the annual reports to see revenues, net income available to common shareholders for year 2010-2017, you'll be amazed at how wonderful this asset cap is.  Similar trend to NIAC will occur at WFC going forward, to much lesser degree, however. 

I'll let people read WFC's 10K exhibit 13, table 8.  Pay particular focus to line items called : Operating Losses, Outside Professional Fees, and Salaries, Commission, Employee Benefits.

2.  For both WFC and BAC, Standardized Approach is governing.  Operational risk is part of Advanced Approach RWA. 

For WFC, please refer to this link
https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/basel-disclosures/2018-third-quarter-pillar-3-disclosure.pdf

As of 9/30/2018
Advanced Approach RWA = $1189.464 Billion (includes $319.388 Operational Risk)
Standardized Approach RWA = $1250.215 Billion

When WFC talks about CET1 ratio of 11.9% (1.9% beyond management's minimum, 2.9% beyond regulator's minimum), they're talking about Standardized numbers.

Say it another way, WFC is already working with operational risk of $380.139 Billion ($1250.215 Billion - $1189.464 Billion + $319.388 B).

Spekulatius

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Re: WFC - Wells Fargo
« Reply #832 on: December 18, 2018, 03:17:01 PM »
One of the things I got wrong when I contemplated on the Fed decree to limit the size of WFC’s balance sheet is what the Fed meant with the issues in WFC “risk control”. I took it that in addition to three obvious issues with managment oversite to be aware of the fake account creation, they possibly WFC’s managment Control regarding underwriting may have been compromised. This does not seem to be the case
The indications from the Fed stress tests, which WFC passed with flying colors, and the recent talk from Powell indicate that the sole issue seems to be that management was not aware (or claim they were not aware :o) of the fake account creation. So WFC has one large issue to deal with, not multiple one. If in fact WFC underwriting culture had gone to hell, this stock would be uninvestible. As it stands, we have imo a good bank with warts. I think this is fixable and that’s  why I bought some shares recently.
« Last Edit: December 19, 2018, 04:06:22 AM by Spekulatius »
To be a realist, one has to believe in miracles.

Schwab711

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Re: WFC - Wells Fargo
« Reply #833 on: December 18, 2018, 08:32:18 PM »
2.  For both WFC and BAC, Standardized Approach is governing.  Operational risk is part of Advanced Approach RWA. 

For WFC, please refer to this link
https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/basel-disclosures/2018-third-quarter-pillar-3-disclosure.pdf

As of 9/30/2018
Advanced Approach RWA = $1189.464 Billion (includes $319.388 Operational Risk)
Standardized Approach RWA = $1250.215 Billion

When WFC talks about CET1 ratio of 11.9% (1.9% beyond management's minimum, 2.9% beyond regulator's minimum), they're talking about Standardized numbers.

Say it another way, WFC is already working with operational risk of $380.139 Billion ($1250.215 Billion - $1189.464 Billion + $319.388 B).

They go with standardized because sRWA is > aRWA. Only aRWA considers operational risk. Credit risk differs between the two methods for all sorts of reasons. Looking at operational risk in that way is not apples-to-apples.

I don't want to make this a BAC thread but I think BAC's nominal earnings have roughly matched total assets when you back out fines/settlements, despite interest rate tailwinds. It's a bit misleading to say asset growth doesn't matter but there are definitely other ways to grow earnings.

Agreed that WFC is still a great bank in many ways though.
« Last Edit: December 18, 2018, 08:37:32 PM by Schwab711 »

no_free_lunch

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Re: WFC - Wells Fargo
« Reply #834 on: January 03, 2019, 08:10:12 AM »
Given the general carnage is the banking sector, is WFC still the best bet?   There are a lot of banks on sale that don't have as much controversy.  FITB for instance is cheaper on a PE/PB ratio, and there are many others to choose from.

mwtorock

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Re: WFC - Wells Fargo
« Reply #835 on: January 03, 2019, 08:24:47 AM »
Given the general carnage is the banking sector, is WFC still the best bet?   There are a lot of banks on sale that don't have as much controversy.  FITB for instance is cheaper on a PE/PB ratio, and there are many others to choose from.

Maybe WFC has been looked at so hard at very corner in their offices that the chance of more/big problems is actually less than other banks?

Schwab711

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Re: WFC - Wells Fargo
« Reply #836 on: January 03, 2019, 08:31:54 AM »
Given the general carnage is the banking sector, is WFC still the best bet?   There are a lot of banks on sale that don't have as much controversy.  FITB for instance is cheaper on a PE/PB ratio, and there are many others to choose from.

We should start a separate thread but I like FITB a lot.