Author Topic: WFC - Wells Fargo  (Read 220629 times)

Kiltacular

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Re: WFC - Wells Fargo
« Reply #10 on: May 24, 2012, 02:28:59 PM »
Quote
They are already there.  Investors just don't know it yet.  Continued recovery in housing will generate more confidence in other sectors, including consumer spending and business hiring.  Cheers!

Yes!...agree Parsad.  I left out an important part of the comment which was (paraphrasing here) that those should be the returns on tangible equity assuming the most onerous capital requirements that might be put forward. 

Recall that in June (?) of last year, some Fed banker stepped forward and suggested that capital requirements would be huge for the big banks -- the bank stocks tanked.

That has faded away. 

In the last (IIRC) conference call, Wells said something about how their SIFI buffer would -- at most -- be 1%, "if that" or "if there's one at all". 

So, if Wells is required to hold 7% capital and can get a 1.6% ROA (in a normalized interest rate environment -- see investor day), that could be a reported ROE of well over 20% (return on tangible would be higher still, of course).

If they're required to hold, say, 8.5% and get a 1.3% ROA (their low end ROA), that would be a reported ROE of 15%.

So, their "targeted" ROE target of 12 to 15% seems very conservative.  It fits with my general feeling that banks are lying low in this election year.  They're not going to tout big returns or do anything else (except on accident -- see JPM) that draws attention (especially to their upside).

This is where I agree with you about what investors are missing.  Investors aren't used to companies playing things down.  But, think about it!

Goldman does not want headlines about it's huge bonuses or enormous average salaries per employee in an election year -- not after what they've seen the last few years.

Wells, as you note, is already producing huge returns.
« Last Edit: May 24, 2012, 02:35:45 PM by Kiltacular »


Arden

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Re: WFC - Wells Fargo
« Reply #11 on: June 30, 2012, 03:51:51 PM »
In the last year the stock has risen from about 29 to above 33, while the warrant dropped from 9.7 to 8.8.  The required return to break even has fallen from 8.5% to just 5.2%.

For context, you can look at the options for january 2014. these trade around 3.7$, with a strike of 35$, a dollar above the warrant, and expire 1.5 years from now(almost exactly :) ) ,  while the warrants have more than 4 times as much time- 6.3 years, and trade for less than twice as much as the options.

Heck, it's reaching a point in which inflation alone is almost enough, not to mention the average return on stocks or the average return WFC has achieved.  weird.
Sol Arden

Arden

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Re: WFC - Wells Fargo
« Reply #12 on: July 26, 2012, 08:10:48 AM »
Does anyone know if WFC is still buying back warrants?
Sol Arden

jose

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Re: WFC - Wells Fargo
« Reply #13 on: July 26, 2012, 09:48:01 AM »
They didn't mention it in the Q2 conference call. I'm still waiting on the 10-Q to show-up in edgar, and that will be one of the things I'll look for.

In the Q1 report (page 42), they note they've purchased 71M of the original 110M warrants so far, and they have $453M left to buy more warrants.  That means they could theoretically purchase the rest of those 40M warrants at current prices, if volume allowed. But I'm not selling them mine. Ha.


racemize

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Re: WFC - Wells Fargo
« Reply #14 on: July 26, 2012, 09:59:30 AM »
They didn't mention it in the Q2 conference call. I'm still waiting on the 10-Q to show-up in edgar, and that will be one of the things I'll look for.

In the Q1 report (page 42), they note they've purchased 71M of the original 110M warrants so far, and they have $453M left to buy more warrants.  That means they could theoretically purchase the rest of those 40M warrants at current prices, if volume allowed. But I'm not selling them mine. Ha.

please update us when you get to look at the 10-Q.  I have a feeling that the last set of warrants may not be easy to repurchase, e.g., from you and a bunch of other value investors.  :0.

Arden

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Re: WFC - Wells Fargo
« Reply #15 on: July 26, 2012, 02:29:24 PM »
I've just thought of something. The company has obviously decided to buy back a lot of warrants. Why would it do that instead of buying shares? every investor is looking at buybacks and dividends, why return money by buying back warrants?

Maybe, just maybe, someone in charge decided they don't want anything which has the words "troubled asset relief" and WFC on it, in existence. Maybe the reason is more to do with cleaning up the company's reputation and forgetting all about the mess from a few years ago than just returning money.

If so, would they really care if they buy back at 8,9, or 12$? But, obviously they cannot announce it.

I believe that if it turns out that the company has still bought back warrants this quarter, we are in a very special situation here.
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Rabbitisrich

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Re: WFC - Wells Fargo
« Reply #16 on: July 26, 2012, 03:26:43 PM »
I've just thought of something. The company has obviously decided to buy back a lot of warrants. Why would it do that instead of buying shares? every investor is looking at buybacks and dividends, why return money by buying back warrants?


Not sure about 2Q12, but WFC didn't repurchase any warrants in 1Q. Unfortunately, the primary return of shareholder money is in the form of dividends. Stock buybacks are simply supplying shares for compensation.

Rabbitisrich

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Re: WFC - Wells Fargo
« Reply #17 on: July 26, 2012, 04:28:50 PM »
http://blogs.wsj.com/deals/2012/07/26/wells-fargo-architect-kovacevich-says-big-banks-are-safer/

Some good points raised, although I disagree with his overall point.

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“What is the risk of underwriting debt, underwriting equity, and providing [merger and acquisition] advise? There is no risk,” Kovacevich said. ”Do you know how risky commercial lending is? Traditional investment banking is less risky than commercial and consumer lending. Exclamation point.”

jose

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Re: WFC - Wells Fargo
« Reply #18 on: August 20, 2012, 11:16:39 AM »
They purchased 35k warrants at an average price of $8.32 in June (page 157 of 10q).

A small purchase, but they are constrained by low volume. 

Interesting to see that a) they are still actively looking at these and b) at what price they started buying them back up, which not-so-coincidentally was near bottom.



meiroy

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Re: WFC - Wells Fargo
« Reply #19 on: August 20, 2012, 08:37:39 PM »
"In connection with our participation in the Capital Purchase Program (CPP), a part of the Troubled Asset Relief Program (TARP), we issued to the U.S. Treasury Department warrants to purchase 110,261,688 shares of our common stock with an exercise price of $34.01 per share expiring on October 28, 2018. The Board authorized the repurchase by the Company of up to $1 billion of the warrants. On May 26, 2010, in an auction by the U.S. Treasury, we purchased 70,165,963 of the warrants at a price of $7.70 per warrant. We have purchased an additional 951,426 warrants since the U.S. Treasury auction. At June 30, 2012, there were 39,144,299 warrants outstanding and exercisable and $452 million of unused warrant repurchase
authority. Depending on market conditions, we may purchase from time to time additional warrants in privately negotiated or open market transactions, by tender offer or otherwise."

Just for fun: 452,000,000 / 39,144,299 =11.5470