Author Topic: WFC - Wells Fargo  (Read 363924 times)

Viking

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Re: WFC - Wells Fargo
« Reply #950 on: May 18, 2019, 02:36:29 PM »
Stubble, it does make sense to me. I think BAC has been doing something similar for years. I think BAC still has about $40 billion of old pre 2008 loans that are trying to essentially run off. It is one of the reasons that BAC has been posting such low top line growth.

WFC said when they make the sale it results in a one time gain. And when they reinvest the proceeds the NII is lower. However, the quality of the new loan is also better. This was only one of about 6 different reasons why WFC said NII would be falling year over year.

Donít get me wrong. It will take WFC another year or two to emerge from their current cloud. I still expect more negative surprises. Their business mix also looks quite different than JPM or BAC (and C is even more different). WFC looks much more sensitive to long bond yields than peers. Bottom line, at $45.50 per share i am starting to like the risk/reward potential of WFC a little more. I have a small position today and will continue reading and listening and learning...
« Last Edit: May 18, 2019, 02:39:47 PM by Viking »


StubbleJumper

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Re: WFC - Wells Fargo
« Reply #951 on: May 18, 2019, 02:49:52 PM »
Stubble, it does make sense to me. I think BAC has been doing something similar for years. I think BAC still has about $40 billion of old pre 2008 loans that are trying to essentially run off. It is one of the reasons that BAC has been posting such low top line growth.

WFC said when they make the sale it results in a one time gain. And when they reinvest the proceeds the NII is lower. However, the quality of the new loan is also better. This was only one of about 6 different reasons why WFC said NII would be falling year over year.

Donít get me wrong. It will take WFC another year or two to emerge from their current cloud. I still expect more negative surprises. Their business mix also looks quite different than JPM or BAC (and C is even more different). WFC looks much more sensitive to long bond yields than peers. Bottom line, at $45.50 per share i am starting to like the risk/reward potential of WFC a little more. I have a small position today and will continue reading and listening and learning...


So, if they are recognizing a one-time gain, then these are loans that have been written down and then experienced recoveries?  Or is it the case that the loans haven't been written down, but the purchaser is paying a premium to get these loans?

I currently hold a ~5% position in WFC, but am thinking about adding.

SJ

mjs111

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Re: WFC - Wells Fargo
« Reply #952 on: May 19, 2019, 08:35:57 AM »

So, if they are recognizing a one-time gain, then these are loans that have been written down and then experienced recoveries?  Or is it the case that the loans haven't been written down, but the purchaser is paying a premium to get these loans?

I currently hold a ~5% position in WFC, but am thinking about adding.

SJ

The loans Wells is selling are largely the purchased credit-impaired Pick-a-Pay loans Wells got from the Wachovia acquisition in 2008.  When Wells bought Wachovia the purchase price assumed impairment (the loans weren't performing at the time of the acquisition), and the loans were added to the books at a discount to their face value. 

If the bank recognizes more income than it expects from the loan (because the loan starts performing again and/or because the bank sells the loan for an amount greater than the amount the loan's balance sheet value is) it recognizes the gain as income.

eatliftinvestgolf

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Re: WFC - Wells Fargo
« Reply #953 on: May 22, 2019, 04:55:01 PM »
Published May 16, 2019

https://www.americanbanker.com/news/wells-fargo-moves-closer-to-recouping-some-losses-tied-to-scandal


ďA federal judge has given preliminary approval to the proposed $240 million settlement of a lawsuit in which Wells Fargo stands to recover for financial losses the bank incurred as a result of its phony-accounts scandal....

In an order Tuesday, U.S. District Judge Jon Tigar concluded that $2.5 billion to $3.5 billion is a reasonable estimate of the damage incurred by the shareholder plaintiffs.

That range includes $1.1 billion in fines, penalties and other out-of-pocket costs borne by Wells Fargo as a result of the scandal. It also includes an estimated $1.4 billion to $2.4 billion in lost income due to factors such as reputational harm and the impact of the asset cap that the Federal Reserve imposed on the $1.9 trillion-asset bank last year.

The proposed settlement represents only between 6.9% and 12.8% of the bankís estimated liability, depending on how the calculation is made, the judge found....Ē

CorpRaider

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Re: WFC - Wells Fargo
« Reply #954 on: May 23, 2019, 09:41:21 AM »
Could someone tell me the answer to the following:  "You are a retail peon with no liquidity concerns.  Would you rather, WFC, USB, or FCNCA?"  Thanks in advance.   ;D 

I guess base rates/kahneman/tetlock would tell me cheap > size or "quality" so....probably WFC.
« Last Edit: May 23, 2019, 11:58:39 AM by CorpRaider »

koshigoe

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Re: WFC - Wells Fargo
« Reply #955 on: May 26, 2019, 10:06:13 PM »
I haven't found a bullish article yet on Wells, at least not one that is pounding the table as a buy. Seems we've reached max pessimism. Of course could go lower, but let's look at the pertinent points:

at ~46 you're getting a massive, stable, arguably one of the least-changing businesses (vanilla banking) on the planet, highly transparent and safe, that makes ~20 billion. and you're paying 210b for that. so 10x POST tax on a business that will be here in pretty much the same form (if not better with fewer branches and humans) 30 yrs from now. is there any other non-cyclical business close to that valuation? only ones close (and they're all much more cyclical) I think of are micron, GM, some other car companies, maybe some companies in the oil industry, like Phillips 66.

but wait, there's more...

they've got excess reserves of ~20b that will be returned over the next 24 months.

the price will either go up, or they get to pound back that 20B on cheap shares. (edit: catalyst alert, CCAR results come out in 4 short weeks!)

the CCAR should be as much or more than last year, allowing them to return ~25b in repurchase next 12 months and up the dividend 10% per annum for a couple of years.

and if the price drops more, to a P/E south of 10!?, then that 40-50B in repurchase funds over the next 24 months will buy even more back.

I see this as an enormously favorable risk-adjusted investment. WFC to me is a 65 stock at least, and if it sits where it's at it could be 70+ in a couple of years.

and second point, tangentially related but more out of respect to a fair universe, to those who criticize the 'horrible actions' of wells, how much were consumers actually harmed? well, after reparations 0, but even before it was just some hundred millions or so spread over several million people, like 10$ a person. this whole thing has to me, shown more about us as a litigious society bent on ruining well intentioned and positive institutions than taking responsibility for own actions. and stumpf was a milquetoast leader, and the incentive system was dumb, but wells on the whole is one of the glories of our civilization, and many people have forgotten that. or never knew it to begin with lol.
« Last Edit: May 26, 2019, 10:11:02 PM by koshigoe »

Cardboard

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Re: WFC - Wells Fargo
« Reply #956 on: May 29, 2019, 11:55:35 AM »
For disclosure, I bought BAC at around $5 in 2011 and sold in the high teens. So I was somewhat familiar with all the large U.S. banks at the time.

I was intrigued by WFC with a weaker share price chart than the others, constant bad news such as from that ... Warren, so took a look at it.

Price to TBV is 1.37 times vs 1.49 times for BAC so not much difference.

P/E is 9.4 times vs 9.6 times for BAC so again not much difference.

I have not looked at C yet but, I imagine it is similar. The only one I suspect is slightly ahead of the others is JPM due to Dimon and higher quality perception.

So is this a case that this bank is worth more than the other money center banks? Because unless it returns to its premium valuation of the past it does not seem so compelling as an investment vs the others.

I am also disturbed by Buffett's actions or constant selling. It made sense until Q2 2018 that it was to keep the holding below 10% for regulation. However, selling is now going quite a bit faster than the rate at which they are buying back their shares with only 409.8 million at Berkshire on latest count.

Cardboard

cmlber

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Re: WFC - Wells Fargo
« Reply #957 on: May 29, 2019, 12:09:53 PM »
P/E is 9.4 times vs 9.6 times for BAC so again not much difference.

WFC has 55,000 more employees than BAC with $100B less deposits and $500B less assets.  At the median salary, that's a $3.6B/year cost saving opportunity for the next CEO.

Also, WFC has ~10% of the market cap in excess capital vs BAC only ~5%.

Viking

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Re: WFC - Wells Fargo
« Reply #958 on: May 29, 2019, 03:43:40 PM »
Cardboard, i think both BAC and JPM are in a much better position today than WFC. However, i think WFC has more opportunity to grow eps the next three years; mostly from expense reduction. C is cheap but also looks to me to be the lowest quality of the big 4.

I own some WFC, purchased not too long ago. I am hoping BAC trades below $27 to re-estaablish a position.

aws

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Re: WFC - Wells Fargo
« Reply #959 on: May 29, 2019, 03:49:16 PM »
I am also disturbed by Buffett's actions or constant selling. It made sense until Q2 2018 that it was to keep the holding below 10% for regulation. However, selling is now going quite a bit faster than the rate at which they are buying back their shares with only 409.8 million at Berkshire on latest count.

Cardboard

You're forgetting about the 23mm WFC shares Berkshire owns thru New England Asset Management, bringing the total to 432mm, which is 9.6% of the shares outstanding at 3/31, and only a few weeks buybacks ahead of crossing the 10% threshold if he weren't actively selling.