Author Topic: WFC - Wells Fargo  (Read 300778 times)

eatliftinvestgolf

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Re: WFC - Wells Fargo
« Reply #910 on: April 17, 2019, 06:57:32 AM »
Hi all, this is my first time posting. I have been reading the message board for a while as I keep a significant percentage of my public equity portfolio in Berkshire.  I am an investment professional in the private markets and invest in public markets only for myself.

Some of these comments may be overlapping a bit with prior ones in the thread.

I recently initiated a position in Wells Fargo at ~$47 due to compelling risk/reward trade-off.   Given Berkshire can't go over 10% ownership, I wanted to upgrade my exposure.  I think from these levels Wells Fargo can earn a highly certain 13-15% compounding pre-tax return over the next decade due to underlying profitability outlook of the franchise, significant buybacks, and a modest P/B multiple re-rating over the next decade.

Although many are focused on the scandal and recent damages to the company, I believe that this is a great entry point to Wells Fargo:
- They are purchasing a substantial amount of common equity at prices lower than average historical P/B. 
- Tax reform has improved the warranted valuation for a banking institution that has pricing power: hard to believe the benefits will be fully competed away in the regulated oligopoloy that America has today.
- Due to post-crisis regulations, they have lower leverage levels and lower risk to achieving a healthy across the cycle return on tangible equity
- They continue to maintain the deposit base that give it a low cost advantage despite the scandal. The customers that remain have shown us that Wells Fargo is crucial to them or they are too lazy to change: these are great customers to have!
- They are mapping out every single process of the company in order to "fix" the issues for regulators:  This will be a tremendous asset to automating many functions previously conducted by human beings and I expect this to support massive headcount reduction during the next five years.  In my mind, there is no job more at risk of automation than bank tellers...
- The cross-selling scandal has created excellent incentives for the company to spend substantial sums on technology that will help to catch the bank up with JPM and BAC. I believe cross-selling is essential to success in the business model, but they need to have the right technology, automation, and incentives place to avoid wrongdoing.
- Management has incentives to talk down the outlook because politicians get irrationally upset about profitability. The market also seems overly focused on near-term NIM outlook as a factor in the valuation of the company.
- Due to the current asset cap, although Wells Fargo's top-line growth is restricted, there are signs they are choosing to instead de-risk the balance sheet much more than other banks heading into the next recession and can more aggressively expand in a much more favorable portion of the cycle when others are hurting.
- I expect the board to hire a CEO in the next 2-4 months who primarily spends their time as cheerleader in chief for a new culture at Wells Fargo and drive success for many years to come. I don't see why the situation is unfixable for them.
- I have confidence in management team's capital allocation abilities.  I also like the business mix compared to peers.
- It's a super boring story and many will say that it's better to pursue higher return ideas or hold cash and deploy at a more favorable time in the cycle. At these prices and with the continued buybacks, I don't feel the need to bottom-tick the purchase.


vince

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Re: WFC - Wells Fargo
« Reply #911 on: April 17, 2019, 07:09:47 AM »
The interim CEO has to be defensive, he can’t make commitments on behalf of the new CEO. I ams Ort of Ok with the asset cap. It certainly prevents them from doing something stupid late in the cycle and thy can buy back shares quite cheaply. Organic reinvestment is preferable, but I am not sure it’s a great idea to put the foot on the gas now. if they can continue to pay an almost 4% dividend and buy back 6% of their outstanding shares this year as well and remain overcapitalized, I am quite happy.

(Edited for typo)

This sums it up perfectly.  If you are patient you will most certainly extract a good return here.  If you are dying for the stock to re rate then you are probably misunderstanding the investment case.

Dynamic

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Re: WFC - Wells Fargo
« Reply #912 on: April 17, 2019, 08:24:17 AM »
Welcome, @Eatfitinvestgolf. Interesting post. Like you I have a fair bit of look through exposure to WFC via Berkshire Hathaway and I owned about a 4% direct holding until early 2018 when I switched the position into more Berkshire. I now hold a position in BAC, which again adds to a look through stake via Berkshire.

I think the period of penance could drag out a bit, but hopefully someone who understands misincentives will come in to lead the bank, clear up the old problems and appease regulators.

I do have some concerns that there may be some more bad news still to emerge and right now I think I have enough indirect exposure thanks to my enormous Berkshire position. Berkshire may offer slightly lower returns over the next cycle but is also far more diversified with probably somewhat lower downside risk to act as the bedrock of my portfolio and provide liquidity for when my next high conviction deeply undervalued opportunity arrives that might let me double a substantial portion of my capital in a couple of years.

eatliftinvestgolf

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Re: WFC - Wells Fargo
« Reply #913 on: April 26, 2019, 09:59:05 AM »
https://www.reuters.com/article/us-wells-fargo-ceo-exclusive/exclusive-wells-fargo-taps-headhunter-spencer-stuart-to-find-new-ceo-sources-idUSKCN1S21RY

some comments on the search for WFC CEO;  Spencer Stuart has been retained.  Reportedly focused on female candidates.

eatliftinvestgolf

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Re: WFC - Wells Fargo
« Reply #914 on: May 02, 2019, 02:00:09 PM »
Munger reiterates Buffett/Munger preference for main street banking experience.  Trashes prior CEOs a bit and complements Tim Sloan as a conservative lender.

https://www.wsj.com/articles/charlie-munger-doesnt-want-wall-street-making-the-damn-decisions-at-wells-fargo-11556810465

sleepydragon

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Re: WFC - Wells Fargo
« Reply #915 on: May 06, 2019, 08:41:39 AM »


https://www.wsj.com/articles/bridgewater-co-ceo-eileen-murray-weighs-leaving-worlds-largest-hedge-fund-11557154633

“Ms. Murray was recently contacted by representatives of Wells Fargo & Co. about the bank’s open CEO role, people familiar with the matter said. Wells Fargo representatives also called people close to Ms. Murray as part of that process. Ms. Murray subsequently tipped off the job possibility to others at Bridgewater, these people said.

Wells Fargo is one of a series of companies that Ms. Murray has discussed potential roles with in recent years, people familiar said. She also interviewed several times with Uber Technologies Inc. for a high-level job around the time the

sleepydragon

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Re: WFC - Wells Fargo
« Reply #916 on: May 06, 2019, 09:37:21 AM »


https://www.wsj.com/articles/bridgewater-co-ceo-eileen-murray-weighs-leaving-worlds-largest-hedge-fund-11557154633

“Ms. Murray was recently contacted by representatives of Wells Fargo & Co. about the bank’s open CEO role, people familiar with the matter said. Wells Fargo representatives also called people close to Ms. Murray as part of that process. Ms. Murray subsequently tipped off the job possibility to others at Bridgewater, these people said.

Wells Fargo is one of a series of companies that Ms. Murray has discussed potential roles with in recent years, people familiar said. She also interviewed several times with Uber Technologies Inc. for a high-level job around the time the


What the board is thinking. I don’t think she will be a good fit. No experience making loans at all. Might be good fit for dealing with politicians though as bridgewater is very good at this.

mwtorock

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Re: WFC - Wells Fargo
« Reply #917 on: May 06, 2019, 09:59:12 AM »


https://www.wsj.com/articles/bridgewater-co-ceo-eileen-murray-weighs-leaving-worlds-largest-hedge-fund-11557154633

“Ms. Murray was recently contacted by representatives of Wells Fargo & Co. about the bank’s open CEO role, people familiar with the matter said. Wells Fargo representatives also called people close to Ms. Murray as part of that process. Ms. Murray subsequently tipped off the job possibility to others at Bridgewater, these people said.

Wells Fargo is one of a series of companies that Ms. Murray has discussed potential roles with in recent years, people familiar said. She also interviewed several times with Uber Technologies Inc. for a high-level job around the time the


What the board is thinking. I don’t think she will be a good fit. No experience making loans at all. Might be good fit for dealing with politicians though as bridgewater is very good at this.

I guess at this point of time, they probably just want someone that can deal with politicians.

sleepydragon

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Re: WFC - Wells Fargo
« Reply #918 on: May 06, 2019, 11:51:57 AM »
According to the CNBC interview, Buffett suggested a couple names to WFC chairman a few days ago.
Keeping my hope high that they get someone good.

sleepydragon

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Re: WFC - Wells Fargo
« Reply #919 on: May 07, 2019, 10:21:42 AM »


https://www.wsj.com/articles/bridgewater-co-ceo-eileen-murray-weighs-leaving-worlds-largest-hedge-fund-11557154633

“Ms. Murray was recently contacted by representatives of Wells Fargo & Co. about the bank’s open CEO role, people familiar with the matter said. Wells Fargo representatives also called people close to Ms. Murray as part of that process. Ms. Murray subsequently tipped off the job possibility to others at Bridgewater, these people said.

Wells Fargo is one of a series of companies that Ms. Murray has discussed potential roles with in recent years, people familiar said. She also interviewed several times with Uber Technologies Inc. for a high-level job around the time the


What the board is thinking. I don’t think she will be a good fit. No experience making loans at all. Might be good fit for dealing with politicians though as bridgewater is very good at this.

I asked a friend of mine who used to work at Bridgewater. My friend spoke highly of Ms. Murray - calling her a very effective problem solver. She would come to meetings , no bullshitting like others, always get to the points immediately and solve problems quickly,  and she is a good listener.