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General Category => Investment Ideas => Topic started by: Viking on November 25, 2011, 10:05:43 AM

Title: WFC - Wells Fargo
Post by: Viking on November 25, 2011, 10:05:43 AM
As expected, Euro banks are selling risk assets and WFC is buying. High supply and low demand should mean very attractice prices. Another recession may result in the (relatively) healthy banks growing substantially by buying assets at firesale prices. As Buffett once commented (I think), WFC management must feel like an undersexed male in a brothel.

http://www.bloomberg.com/news/2011-11-25/bank-of-ireland-said-to-near-sale-of-burdale-lending-unit-to-wells-fargo.html?cmpid=yhoo (http://www.bloomberg.com/news/2011-11-25/bank-of-ireland-said-to-near-sale-of-burdale-lending-unit-to-wells-fargo.html?cmpid=yhoo)
Title: Re: WFC - Wells Fargo
Post by: Uccmal on November 25, 2011, 03:54:41 PM
Viking,  do you mean Oversexed, by any chance?   ;)
Title: Re: WFC - Wells Fargo
Post by: Liberty on November 28, 2011, 12:45:02 PM
http://online.wsj.com/article/BT-CO-20111128-711394.html
Title: Re: WFC - Wells Fargo
Post by: txlaw on December 02, 2011, 09:09:37 AM
http://online.wsj.com/article/SB10001424052970204826704577074291361796220.html
Title: Re: WFC - Wells Fargo
Post by: racemize on February 17, 2012, 09:24:42 AM
anyone know what this 2% run up is from? 

Edit: perhaps because it was not downgraded like the rest of the banks?
Title: Re: WFC - Wells Fargo
Post by: Arden on February 17, 2012, 11:16:42 AM
There are no reasons in the stock market, only pain.
http://www.youtube.com/watch?v=Y4kwk5jV2nU&feature=player_embedded
Title: Re: WFC - Wells Fargo
Post by: racemize on April 06, 2012, 04:47:29 PM
anyone have any strong opinions on the shareholder votes/directors?  I'm reading through the material now, but if anyone's already given it some thought, please post!
Title: Re: WFC - Wells Fargo
Post by: Rabbitisrich on May 22, 2012, 02:52:13 PM
Quote
NEW YORK (Dow Jones)--Wells Fargo & Co.'s (WFC) top two executives kicked off their investor day by reassuring Wall Street that Wells Fargo is a more stable and less risky company than other big banks.
  "You can't take outsized risk in the financial services industry," Chief Financial Officer Timothy Sloan told investors assembled here Tuesday morning, just over a week after J.P. Morgan Chase & Co. (JPM) reported that a bet on credit default swaps went badly wrong. "We have less risk than our peers."
  Chief Executive John Stump said part of Wells Fargo's culture is to be "willing to say, 'I don't understand this, I won't do this'."
  Wells Fargo, the nation's fourth-largest bank by assets, has taken the kind of risk that the nation's largest bank, J.P. Morgan, did: Hedging certain business through trading products including credit default swaps. And Wells Fargo has gained and lost billions through hedging--but results came in largely as planned to offset gains and losses in the value of mortgage servicing rights.
  There aren't any macro hedges at Wells Fargo, Chief Risk Officer Mike Loughlin said. "We either buy securities or don't," but don't buy securities and then hedge them.
  "We do not do any centrally directed portfolio hedges," he said.
  Asked whether Wells Fargo has something like a chief investment office, the unit responsible for J.P. Morgan's hedging loss, Loughlin simply said, "No."
  Sloan told investors Tuesday that Wells Fargo had drastically reduced its exposure to credit default swaps over the last three years. "Credit default swaps are in the news," he said, with an eye on J.P. Morgan's $2 billion estimated second-quarter hedging loss. "Three years ago our credit default swaps [were] much too large, and it is now about a quarter of what it was three years ago."
  Mike Heid, the head of home lending, said that hedging mortgage servicing rights is "a critical capability" any bank has to have. "That said, it's not a trading activity. It is not trading in any shape or form," he added.
  At Wells Fargo, hedging mortgage servicing rights isn't part of the investment portfolio of the bank, but is done within the mortgage business to keep hedging closer to the underlying assets that are the cause of the change in the value of servicing rights, namely interest rates and mortgage refinancings.
  Wells Fargo calls the relationship between interest rates and mortgage refinancing, and the value of mortgage servicing rights a "natural hedge." When rates fall, Wells Fargo originates refinance mortgages and the value of servicing rights decline.
  CFO Sloan, meanwhile, raised the bank's return targets: The goal is now to eventually generate a return on assets of as much as 1.6% once the economy returns to health. At its investor day three years ago, Wells Fargo said it targets an ROA of 1.5%. But in the currently slow growth environment, the ROA will come in toward the middle of the bank's target range of 1.3% to 1.6%, he said.  The bank targets returns on equity between 12% and 15%, Sloan said.  Treasurer Paul Ackerman said the bank may return between 50% and 65% of its earnings to shareholders in form of share buybacks and dividends and retain the rest for investments in growth, mainly organic, as many heads of Wells Fargo's lines of business outlined in their presentations during the day.  The CFO reiterated that the bank needs to bring expenses down to reach a 55% to 59% efficiency ratio--the ratio of how much a company spends for each dollar it earns. "We feel good about" hitting that target, though he didn't explicitly state a timeline. Wells Fargo plans to reach its goal of $11.3 billion of expense in the fourth quarter, down from almost $13 billion in the first quarter.  He also reiterated Wells Fargo's appetite to buy businesses, but remained vague about what the bank might acquire next: "We look for good business to buy that we understand," he said. But investors shouldn't count on massive reductions of Wells Fargo's reserve for loan losses to pop up earnings. Chief Risk Officer Loughlin said "it was painful to build them...we don't want to give them away easily." Wells Fargo wants to keep reserves "at very, very high levels."   -By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com
Title: Re: WFC - Wells Fargo
Post by: Kiltacular on May 24, 2012, 11:32:20 AM
Just to add an important point from the investor day:

#1:  While targeting a 12 to 15% ROE, much more importantly, they expect a 15 - 19% return on tangible equity. 

--

My feeling has been -- and continues to be -- that once the election is over (no matter the winner) much of the negative regulatory headwinds will dissipate.  The banks will likely be out of the headlines, out of the news, etc., etc.

If we ever get the economy really growing again, I still feel that the big banks -- esp. BAC, JPM and Wells -- will show enormous growth.
Title: Re: WFC - Wells Fargo
Post by: Parsad on May 24, 2012, 11:41:37 AM
Just to add an important point from the investor day:

#1:  While targeting a 12 to 15% ROE, much more importantly, they expect a 15 - 19% return on tangible equity. 

--

My feeling has been -- and continues to be -- that once the election is over (no matter the winner) much of the negative regulatory headwinds will dissipate.  The banks will likely be out of the headlines, out of the news, etc., etc.

If we ever get the economy really growing again, I still feel that the big banks -- esp. BAC, JPM and Wells -- will show enormous growth.

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!

http://finance.yahoo.com/news/fdic-bank-profits-highest-level-140004456.html;_ylt=Ara_C4EUxvKHZ80YnblIghCiuYdG;_ylu=X3oDMTQ0cmJvZ3RvBG1pdANGaW5hbmNlIEZQIFRvcCBTdG9yeSBSaWdodARwa2cDNjA0MzgxZWUtNGYxNy0zNzBkLWFkMjItZjYzMzA1ZjA3YjJkBHBvcwM4BHNlYwN0b3Bfc3RvcnkEdmVyAzgzYjE1ZGYwLWE1YWQtMTFlMS1iZmNlLWYzNTRhZTVhNzY3ZQ--;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3
Title: Re: WFC - Wells Fargo
Post by: Kiltacular 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.
Title: Re: WFC - Wells Fargo
Post by: Arden 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.
Title: Re: WFC - Wells Fargo
Post by: Arden on July 26, 2012, 08:10:48 AM
Does anyone know if WFC is still buying back warrants?
Title: Re: WFC - Wells Fargo
Post by: jose 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.

Title: Re: WFC - Wells Fargo
Post by: racemize 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.
Title: Re: WFC - Wells Fargo
Post by: Arden 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.
Title: Re: WFC - Wells Fargo
Post by: Rabbitisrich 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.
Title: Re: WFC - Wells Fargo
Post by: Rabbitisrich 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/ (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.

Quote
“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.”
Title: Re: WFC - Wells Fargo
Post by: jose 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.


Title: Re: WFC - Wells Fargo
Post by: meiroy 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

Title: Re: WFC - Wells Fargo
Post by: Arden on August 21, 2012, 04:50:34 AM
Wow, thanks meiroy, that's really interesting.

My guess is when you're tasked with making the TARP warrant disappear from the market and you're 65% done, You're gonna finish your job. I feel almost like I've been given insider information :)
Title: Re: WFC - Wells Fargo
Post by: Arden on August 21, 2012, 05:04:25 AM
Thinking about it some more and looking at the prices at which they bought, it is possible they have a rule- only buy when price is below what Black Scholes model suggests. Otherwise, their average price is quite remarkably low.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on August 21, 2012, 05:58:29 AM
The average price is very low.  The quote is 10.16.  I plan on holding mine indefinitely.   There must be others who are doing the same.  If they plan onbuying them all in they will have to tender at a good premium to get me to sell - at least a 30% premium. 
Title: Re: WFC - Wells Fargo
Post by: Arden on August 21, 2012, 06:03:48 AM
If so, they will only make the offer after they've bought as much as they can, so only the truly hardcore long term holders might enjoy such an offer. I think the tender offer they make will depend on the number of warrants they manage to buy until it gets too hard and the change they have from the original 1 B$
Title: Re: WFC - Wells Fargo
Post by: meiroy on August 27, 2012, 08:39:31 PM

Is it possible to short the WFC warrants? If so, where could one see the relevant data? Thanks.
Title: Re: WFC - Wells Fargo
Post by: berkshiremystery on September 24, 2012, 07:58:01 AM

Why Is Wells Fargo Warren Buffett's 2nd Biggest Holding?
Sep. 22, 2012 - SeekingAlpha.com
http://seekingalpha.com/article/882071-why-is-wells-fargo-warren-buffett-s-2nd-biggest-holding?source=yahoo

America's second-largest home lender also stands to be the most favored bank of billionaire Warren Buffett. The bank is set to be his second biggest holding in Berkshire Hathaway (BRK.A). Buffett has increased his investments in the bank, owing to the rebounding U.S. housing markets. Buffett believes that the bank, being the largest mortgage lender, will benefit from the housing markets, which we believe have bottomed. There is plenty of data to suggest that U.S. housing markets are on their way to a recovery


Earnings History

The bank has a history of surpassing its consensus earnings estimates, as shown in the table below. In the second quarter of the current year, the bank, despite posting a turnover figure that was in line with expectations, surpassed its EPS consensus estimate by 0.89%. Overall, the bank has surpassed its revenue and earnings estimates by 0.6% and 0.4%, respectively, in the past five quarters.
Title: Re: WFC - Wells Fargo
Post by: MrB on September 27, 2012, 07:00:03 AM
Mmmmm?

Today's filing...maybe something to understand and file away..


Filed Pursuant to Rule 424(b)(2)
File No. 333-180728


Wells Fargo & Company

 

Medium-Term Notes, Series K

Commodity Linked Securities

 
 
 
    Buffered Jump Securities

Based on the Performance of Brent Crude Oil Futures due September 25, 2015

 
 
   
    n    Linked to Brent crude oil futures
     
   
    n    Unlike ordinary debt securities, the securities do not pay interest or repay a fixed amount of principal at maturity. Instead, the securities provide for a payment at maturity that may be greater than, equal to or less than the original offering price of the securities, depending on the performance of Brent crude oil futures from the starting price to the ending price. The payment at maturity will reflect the following terms:
 
   
        n    If the settlement price of Brent crude oil futures equals the starting price or increases, you will receive the original offering price plus a return equal to the greater of (i) the contingent minimum return of 12% of the original offering price and (ii) the percentage increase in the settlement price of Brent crude oil futures from the starting price to the ending price
 
   
        n    If the settlement price of Brent crude oil futures decreases but the decrease is not more than 15%, you will be repaid the original offering price
 
   
        n    If the settlement price of Brent crude oil futures decreases by more than 15%, you will receive less than the original offering price and have 1-to-1 downside exposure to the decrease in the settlement price of Brent crude oil futures in excess of 15%
 
   
    n    Investors may lose up to 85% of the original offering price
     
   
    n    All payments on the securities are subject to the credit risk of Wells Fargo & Company
     
   
    n    No periodic interest payments
     
   
    n    An investment in the securities is not the same as an investment in Brent crude oil futures
     
   
    n    No exchange listing; designed to be held to maturity
 
Title: Re: WFC - Wells Fargo
Post by: Rabbitisrich on October 02, 2012, 09:01:24 PM
I've been wondering about these linked products as well. I looked for some big protective covenant that would protect WFC's interest, but these products seem relatively straight forward. Wachovia used to screw over small investors with linked securities that would take from principal to pay for unwinding hedges in the case of early termination.

Title: Re: WFC - Wells Fargo
Post by: Kraven on October 03, 2012, 03:28:09 AM
I've been wondering about these linked products as well. I looked for some big protective covenant that would protect WFC's interest, but these products seem relatively straight forward. Wachovia used to screw over small investors with linked securities that would take from principal to pay for unwinding hedges in the case of early termination.

There is nothing new about these linked products.  They've been doing them for well over a decade.  It wouldn't surprise me if WFC was a little late to the game on them, but they are typically very straightforward instruments.  I don't know anything about these specific ones, but on the surface there is nothing to be concerned about. 
Title: Re: WFC - Wells Fargo
Post by: Liberty on October 09, 2012, 01:20:06 PM
http://www.bloomberg.com/news/2012-10-09/u-s-files-civil-mortgage-fraud-suit-against-wells-fargo.html
Title: Re: WFC - Wells Fargo
Post by: Rabbitisrich on October 09, 2012, 04:33:43 PM
I've been wondering about these linked products as well. I looked for some big protective covenant that would protect WFC's interest, but these products seem relatively straight forward. Wachovia used to screw over small investors with linked securities that would take from principal to pay for unwinding hedges in the case of early termination.

There is nothing new about these linked products.  They've been doing them for well over a decade.  It wouldn't surprise me if WFC was a little late to the game on them, but they are typically very straightforward instruments.  I don't know anything about these specific ones, but on the surface there is nothing to be concerned about.

The problem is that you can track changing quality for many of WFC's products, but their structured offerings are a mystery. I'm relying on past history + behavior in other areas to feel comfortable, but that's a relatively sorry best-efforts strategy.
Title: Re: WFC - Wells Fargo
Post by: Palantir on October 10, 2012, 08:06:06 AM
How bad do you guys think the damages will be here? I don't directly own WFC, but I own DJCO, which is believed to hold WFC.....
Title: Re: WFC - Wells Fargo
Post by: Arden on October 10, 2012, 08:34:35 AM
An article I read yesterday said it's a few hundred millions, which is much less than was lost yesterday in mkt cap.
Title: Re: WFC - Wells Fargo
Post by: mysticdrew on October 10, 2012, 08:51:01 AM
An article I read yesterday said it's a few hundred millions, which is much less than was lost yesterday in mkt cap.

And my guess is they'll settle for even less than that.
Title: Re: WFC - Wells Fargo
Post by: Rabbitisrich on October 10, 2012, 12:56:32 PM
An article I read yesterday said it's a few hundred millions, which is much less than was lost yesterday in mkt cap.

It was a ~$3.7 B response to a $570 MM claim. Did BAC settle their false claims charge before they were charged? Perhaps the market fears the discovery process.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on October 12, 2012, 05:44:53 AM
Pretty good as well:

https://www.wellsfargo.com/downloads/pdf/press/3q12pr.pdf
Title: Re: WFC - Wells Fargo
Post by: jeffmori7 on October 12, 2012, 06:05:20 AM
Thanks Al. And the stock is losing more than 3% in pre-market!

So far, 2 big banks, 2 good results!
Title: Re: WFC - Wells Fargo
Post by: Uccmal on October 12, 2012, 01:39:09 PM
Yeah, they were all down today.  I guess the rally this week was a pre-earnings rally.  Everyone is hung up on Net Interest Margins being tight.  My read a few weeks ago was that operation twist should improve NIM. 
Title: Re: WFC - Wells Fargo
Post by: ItsAValueTrap on October 12, 2012, 02:19:55 PM
I think an important factor in investing is banks is return OF capital.  If you look through the history of banking, they find new ways of losing money all the time.  Every once in a while a whole bunch of them will go bankrupt.
Investment banks that do proprietary trading are a little worse.  Buffett keeps learning the hard way about prop trading (e.g. GenRe, Salomon Brothers).

I think what Buffett values in Wells Fargo is its management.  He doesn't think that they will do really dumb things.  Wells Fargo has also been around for a long time.
*Wells Fargo was one of many banks which had people squatting in their own homes.  I don't know enough about banking to figure out if management is smart.
Title: Re: WFC - Wells Fargo
Post by: mankap on October 12, 2012, 04:29:27 PM
Operation twist will make NIM worse rather than improve it.In operation twist , Fed is buying long term treasury so it will lower the yield on long term treasury.This will lower the spread between long term and short term rates. NIM has direct  correlation  to spread between long term and short term rates.
Steeper the yield curve , greater the  NIM value would be.
Title: Re: WFC - Wells Fargo
Post by: Parsad on October 12, 2012, 05:54:04 PM
Yeah, they were all down today.  I guess the rally this week was a pre-earnings rally.  Everyone is hung up on Net Interest Margins being tight.  My read a few weeks ago was that operation twist should improve NIM.

Operation twist will not help, as it drives down longer term rates, so the spreads on loans and deposits narrows.  That being said, markets are ridiculously stupid about how they react to any reduction in NIM.  Loans are growing by leaps and bounds; loan loss provisions are incredibly low; banks are still making money hand over fist; capital levels are the highest in 50 years...silly reaction today.  Cheers!
Title: Re: WFC - Wells Fargo
Post by: Parsad on October 12, 2012, 06:36:52 PM
Interview with Wells Fargo's CFO.  Cheers!

http://www.bloomberg.com/video/wells-fargo-cfo-on-third-quarter-earnings-ZAOnStdtRFmbIS2zclIEyQ.html?cmpid=yhoo
Title: Re: WFC - Wells Fargo
Post by: Parsad on October 12, 2012, 06:40:27 PM
Article on Well's mortgage business:

http://www.bizjournals.com/sanfrancisco/blog/2012/10/wells-fargo-mortgage-record-earnings.html?ana=yfcpc

Cheers!
Title: Re: WFC - Wells Fargo
Post by: Uccmal on October 12, 2012, 07:25:08 PM
Yeah, they were all down today.  I guess the rally this week was a pre-earnings rally.  Everyone is hung up on Net Interest Margins being tight.  My read a few weeks ago was that operation twist should improve NIM.

Operation twist will not help, as it drives down longer term rates, so the spreads on loans and deposits narrows.  That being said, markets are ridiculously stupid about how they react to any reduction in NIM.  Loans are growing by leaps and bounds; loan loss provisions are incredibly low; banks are still making money hand over fist; capital levels are the highest in 50 years...silly reaction today.  Cheers!

Yes, of course.  I realize I was confusing operation twist with the latest scheme which is the 40 B/month of mortgage buying.  That Benefits banks by putting a floor on mortgage values, and providing a ready market for servicing new mortgages. 
Title: Re: WFC - Wells Fargo
Post by: Parsad on October 12, 2012, 08:45:58 PM
Yeah, they were all down today.  I guess the rally this week was a pre-earnings rally.  Everyone is hung up on Net Interest Margins being tight.  My read a few weeks ago was that operation twist should improve NIM.

Operation twist will not help, as it drives down longer term rates, so the spreads on loans and deposits narrows.  That being said, markets are ridiculously stupid about how they react to any reduction in NIM.  Loans are growing by leaps and bounds; loan loss provisions are incredibly low; banks are still making money hand over fist; capital levels are the highest in 50 years...silly reaction today.  Cheers!

Yes, of course.  I realize I was confusing operation twist with the latest scheme which is the 40 B/month of mortgage buying.  That Benefits banks by putting a floor on mortgage values, and providing a ready market for servicing new mortgages.

Yeah Al, you are correct.  Buying mortgage bonds back is beneficial.  Cheers!
Title: Re: WFC - Wells Fargo
Post by: mankap on October 13, 2012, 02:56:27 AM
I think Fed has not started buying MBS yet.Atleast I do ot see this from this week's balance sheet.
MBS on Fed's balance sheet has not started to go up.
Once Fed starts buying MBS , it should help banks and AIG also.

http://www.federalreserve.gov/releases/h41/current/
Title: Re: WFC - Wells Fargo
Post by: dcollon on October 23, 2012, 11:26:42 AM
Wells Fargo increases share repurchase authorization
Tuesday, October 23, 2012 05:58:12 PM (GMT)


The Wells Fargo board has increased the company’s authority to repurchase common stock by an additional 200M shares.
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on October 24, 2012, 07:50:44 AM
On CNBC this morning Buffett said he bought more WFC in the last week.
Title: Re: WFC - Wells Fargo
Post by: DCG on October 24, 2012, 09:44:40 AM
On CNBC this morning Buffett said he bought more WFC in the last week.

He always says that.
Title: Re: WFC - Wells Fargo
Post by: mysticdrew on October 24, 2012, 09:50:21 AM
On CNBC this morning Buffett said he bought more WFC in the last week.

Not a surprise. 
I assume he'll continue to be opportunistic and keep on buying on dips until he hits the 10% limit on ownership.
Title: Re: WFC - Wells Fargo
Post by: kevin4u2 on October 24, 2012, 10:39:26 AM
On CNBC this morning Buffett said he bought more WFC in the last week.

Not a surprise. 
I assume he'll continue to be opportunistic and keep on buying on dips until he hits the 10% limit on ownership.

Maybe the stock is just cheap, dip or no dip. 
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on October 24, 2012, 12:39:57 PM
On CNBC this morning Buffett said he bought more WFC in the last week.

He always says that.

I know, but since WFC is close to 10% of my portfolio, I am always glad to experience that feeling of deja vu.
Title: Re: WFC - Wells Fargo
Post by: Kiltacular on October 25, 2012, 12:58:27 PM
I am seeing that there was very large volume on the the Wells Fargo warrants (2018).  I show over 1.5 million traded today -- this seems like 30 or 40x normal. 

Can anyone confirm this? 

Was there a very large trade?

Thanks guys
Title: Re: WFC - Wells Fargo
Post by: LC on October 25, 2012, 01:14:58 PM
I am seeing that there was very large volume on the the Wells Fargo warrants (2018).  I show over 1.5 million traded today -- this seems like 30 or 40x normal. 

Can anyone confirm this? 

Was there a very large trade?

Thanks guys
Bloomberg says the same...no real price movement...maybe the HFT algo's?
Title: Re: WFC - Wells Fargo
Post by: dcollon on October 25, 2012, 01:16:23 PM
There were a couple of large trades around 1:50 at roughly $9.80.  The orders were 725,000.  Not sure how warrants are counted on the exchange i.e. if it was just one trade and printed twice

Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on October 25, 2012, 01:27:02 PM
Is Wells buying back the warrants?

Didn't they do that before?
Title: Re: WFC - Wells Fargo
Post by: meiroy on October 25, 2012, 06:34:40 PM
Is Wells buying back the warrants?

Didn't they do that before?

There was also one 800K on the BAC.WTA.   
Title: Re: WFC - Wells Fargo
Post by: Kiltacular on October 25, 2012, 09:48:41 PM
Thanks for info. / confirmation
Title: Re: WFC - Wells Fargo
Post by: jose on October 25, 2012, 10:57:30 PM
Is Wells buying back the warrants?

Didn't they do that before?

Management has board authorization to buy back $450M of tarp warrants, which means they could in theory buy back all the warrants at these prices. But after the initial auction buyback of 70M of the 110M total warrants, their purchases have been tapering off:

q3/10: 536k
q4/10: 114k
q1/11: 0
q2/11: 0
q3/11: 167k
q4/11: 98k
q1/12: 0
q2/12: 35k

So 725k would represent a significant increase from what they have been doing lately.

I guess we'll find out in the 2012 10k if it was them or not.

Does look very weird on a chart.  I wonder if Wells (or anyone) negotiated a private purchase, would it show up on the volume chart like this once the transaction is registered?
 
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on November 26, 2012, 02:22:57 PM
Interview with Wells Fargo CEO in Fortune

http://management.fortune.cnn.com/2012/11/26/wells-fargo-stumpf/ (http://management.fortune.cnn.com/2012/11/26/wells-fargo-stumpf/)
Title: Re: WFC - Wells Fargo
Post by: jay21 on November 30, 2012, 05:25:50 AM
I am thinking about starting a position in WFC (or MTB or USB).  But I am wondering how you guys think about the valuation and growth of the company.  I think that they want to retain about ~50% of earnings.  Do you then say they make 20% on retained earnings so .5*.2=10% earnings growth?

Thinking about the underlying economics of the business, wouldn't they take a retained dollar and turn into a loan, which would yield ~4%?  So they have to keep adding leverage to keep a high return on capital, which means ensuring they can keep growing deposits.  How do you guys think about deposit growth?
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on December 07, 2012, 09:08:04 AM
http://finance.yahoo.com/news/wells-fargo-boss-talks-bank-174027047.html (http://finance.yahoo.com/news/wells-fargo-boss-talks-bank-174027047.html)

another CEO Q&A

Wells Fargo boss talks bank fees, economy, taxes
Title: Re: WFC - Wells Fargo
Post by: mcliu on December 07, 2012, 12:34:46 PM
I am thinking about starting a position in WFC (or MTB or USB).  But I am wondering how you guys think about the valuation and growth of the company.  I think that they want to retain about ~50% of earnings.  Do you then say they make 20% on retained earnings so .5*.2=10% earnings growth?

Thinking about the underlying economics of the business, wouldn't they take a retained dollar and turn into a loan, which would yield ~4%?  So they have to keep adding leverage to keep a high return on capital, which means ensuring they can keep growing deposits.  How do you guys think about deposit growth?
That's the right way of looking at it.

Each retained dollar is not turned into a dollar of loan, but $10 of loans from the leverage. Leverage will definitely help return on equity, but it'll likely remain stable going forward (it's also using relatively conservative leverage, for a bank).

Your growth will likely come from deposit growth (cross-selling) and enhanced NIMs (getting tougher).
I think conservatively a 50% retention x 1.5% ROA x 10x leverage = ~7.5% growth is reasonable going forward.
Title: Re: WFC - Wells Fargo
Post by: jay21 on December 07, 2012, 08:55:19 PM
That's the right way of looking at it.

Each retained dollar is not turned into a dollar of loan, but $10 of loans from the leverage. Leverage will definitely help return on equity, but it'll likely remain stable going forward (it's also using relatively conservative leverage, for a bank).

Your growth will likely come from deposit growth (cross-selling) and enhanced NIMs (getting tougher).
I think conservatively a 50% retention x 1.5% ROA x 10x leverage = ~7.5% growth is reasonable going forward.

But you would need to inject the leverage to get to the $10 in loans from the one in retained earnings.  Let me give an example:  Awesome Banks balance sheet is:

Loans $100
Deposits $90
Equity $10

Loans pay 5%, deposits cost is 0.  So the bank makes $5 in interest on the loan.  After it collects the interest its B/S is:

Cash $5
Loans $100
Deposits $90
Equity $15

So it only has the $5 to loan out.  It needs to take in more deposits to gear up and keep RoE high, right?
Title: Re: WFC - Wells Fargo
Post by: Junto on December 08, 2012, 06:23:39 AM
That's the right way of looking at it.

Each retained dollar is not turned into a dollar of loan, but $10 of loans from the leverage. Leverage will definitely help return on equity, but it'll likely remain stable going forward (it's also using relatively conservative leverage, for a bank).

Your growth will likely come from deposit growth (cross-selling) and enhanced NIMs (getting tougher).
I think conservatively a 50% retention x 1.5% ROA x 10x leverage = ~7.5% growth is reasonable going forward.

But you would need to inject the leverage to get to the $10 in loans from the one in retained earnings.  Let me give an example:  Awesome Banks balance sheet is:

Loans $100
Deposits $90
Equity $10

Loans pay 5%, deposits cost is 0.  So the bank makes $5 in interest on the loan.  After it collects the interest its B/S is:

Cash $5
Loans $100
Deposits $90
Equity $15

So it only has the $5 to loan out.  It needs to take in more deposits to gear up and keep RoE high, right?

You have to pay tax and operating expenses, but say you net $2, you can then leverage the $2 to $20 using deposits and other borrowings. Most banks are awash in liquidity it is the loan growth that is the difficult part. So you see the leverage shrinking while margins are shrinking, which is reducing the ROE. Hence, why the bank's are mostly trading at a discount to tangible book value.  Note, I think WFC is fairly valued where as there are plenty of banks vastly undervalued.

Give it time, and when interest rates rise and loan demand continues to gain steam the financial sector valuations will shoot the moon from current levels. Problem is that is two to three years out. WFC trades at a premium since it has a moat in the home mortgage servicing business.
Title: Re: WFC - Wells Fargo
Post by: berkshiremystery on January 11, 2013, 07:40:38 AM
Wells Fargo Earnings: The Stagecoach Rolls On
2013-01-11 Fool.com

http://www.fool.com/investing/general/2013/01/11/wells-fargo-the-stagecoach-rolls-on.aspx
Title: Re: WFC - Wells Fargo
Post by: Parsad on January 11, 2013, 01:32:43 PM
So much love for BAC on this board, but not much talk about the great results at WFC.  Cheers!

http://www.sec.gov/Archives/edgar/data/72971/000119312513010112/d450286dex991.htm
Title: Re: WFC - Wells Fargo
Post by: racemize on January 11, 2013, 01:54:37 PM
I think because they keep doing what we expect them to, no fan-fare for consistent goodness.
Title: Re: WFC - Wells Fargo
Post by: Parsad on January 11, 2013, 01:56:22 PM
consistent goodness

Those are the words I use each time I leave "Five Guys Burgers".   ;D  Cheers!
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on January 11, 2013, 05:24:35 PM
WFC CFO recap of quarter on CNBC,

http://video.cnbc.com/gallery/?play=1&video=3000140533#eyJ2aWQiOiIzMDAwMTQwNTMzIiwiZW5jVmlkIjoic1VENCtOMEQ1WGRpYXp4R2FONDg3dz09IiwidlRhYiI6InRyYW5zY3JpcHQiLCJ2UGFnZSI6MSwiZ05hdiI6WyLCoExhdGVzdCBWaWRlbyJdLCJnU2VjdCI6IlVTIiwiZ1BhZ2UiOjIsInN5bSI6IiIsInNlYXJjaCI6IiJ9 (http://video.cnbc.com/gallery/?play=1&video=3000140533#eyJ2aWQiOiIzMDAwMTQwNTMzIiwiZW5jVmlkIjoic1VENCtOMEQ1WGRpYXp4R2FONDg3dz09IiwidlRhYiI6InRyYW5zY3JpcHQiLCJ2UGFnZSI6MSwiZ05hdiI6WyLCoExhdGVzdCBWaWRlbyJdLCJnU2VjdCI6IlVTIiwiZ1BhZ2UiOjIsInN5bSI6IiIsInNlYXJjaCI6IiJ9)
Title: Re: WFC - Wells Fargo
Post by: Parsad on January 22, 2013, 03:21:11 PM
Wells increases dividend 14%...looks to return alot more capital after Fed approval.  Cheers!

http://finance.yahoo.com/news/wells-fargo-increases-quarterly-dividend-213743231.html;_ylt=AppXlnB7KW1373rH94tI8NGiuYdG;_ylu=X3oDMTNycHFxZWNqBG1pdANGUCBUb3AgU3RvcnkgTGVmdARwa2cDMzE1ZThiNTUtN2ZhYy0zM2MwLThiZTItN2I1MzU3NGU2YzMwBHBvcwMyBHNlYwN0b3Bfc3RvcnkEdmVyA2YyZDZjYTIwLTY0ZTQtMTFlMi1iZmZlLTFmZGFmZDY4YWQwYQ--;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3
Title: Re: WFC - Wells Fargo
Post by: Liberty on January 29, 2013, 08:17:40 AM
Brooklyn Investor writeup:

http://brooklyninvestor.blogspot.ca/2013/01/wells-fargo-is-cheap.html
Title: Re: WFC - Wells Fargo
Post by: Liberty on January 30, 2013, 10:18:37 AM
And a follow up to the post above:

http://brooklyninvestor.blogspot.ca/2013/01/mr-market-versus-mr-buffett.html
Title: Re: WFC - Wells Fargo
Post by: alpha23 on January 30, 2013, 01:25:50 PM
And a follow up to the post above:

http://brooklyninvestor.blogspot.ca/2013/01/mr-market-versus-mr-buffett.html

That is a good, clear-headed post. Thanks for sharing.
Title: Re: WFC - Wells Fargo
Post by: PlanMaestro on February 15, 2013, 11:02:36 AM
Posting this while thinking on another stock. ( http://www.hardcorevalue.com/2013/02/pics-of-day-wells-fargo.html )

Historic P/TBV
(http://3.bp.blogspot.com/-VYnG5xn1XWM/UR5Vqs9wPVI/AAAAAAAAAl0/FZup6kVgVHg/s1600/Picture+25.png)


Historic P/E
(http://3.bp.blogspot.com/-v0upgWRiW7w/UR5VpmxUiWI/AAAAAAAAAls/7AT1VrXnH9Q/s1600/Picture+24.png)
Title: Re: WFC - Wells Fargo
Post by: racemize on February 15, 2013, 11:30:00 AM
Nice charts--Buffett has kept buying over the last few years, and those charts are compelling.  If it weren't for BAC, I'd probably have a lot more WFC.
Title: Re: WFC - Wells Fargo
Post by: Liberty on March 01, 2013, 01:54:17 PM
From brk letter:



A “non-real” amortization charge at Wells Fargo, however, is not highlighted by the company and never, to my knowledge, has been noted in analyst reports. The earnings that Wells Fargo reports are heavily burdened by an “amortization of core deposits” charge, the implication being that these deposits are disappearing at a fairly rapid clip. Yet core deposits regularly increase. The charge last year was about $1.5 billion. In no sense, except GAAP accounting, is this whopping charge an expense.



It makes me wonder, does BAC has the same thing?
Title: Re: WFC - Wells Fargo
Post by: treasurehunt on March 01, 2013, 02:34:36 PM
From brk letter:

A “non-real” amortization charge at Wells Fargo, however, is not highlighted by the company and never, to my knowledge, has been noted in analyst reports. The earnings that Wells Fargo reports are heavily burdened by an “amortization of core deposits” charge, the implication being that these deposits are disappearing at a fairly rapid clip. Yet core deposits regularly increase. The charge last year was about $1.5 billion. In no sense, except GAAP accounting, is this whopping charge an expense.

It makes me wonder, does BAC has the same thing?
As I understand it, any bank that has acquired core deposits will show the same charge. I couldn't find the amount of the core deposit intangible amortization charge in the 10-K though. The 10-K does show the value of the core deposit intangibles on the balance sheet (this is the stuff that gets amortized). Here are the 2012 numbers for WFC, BAC and JPM.

WFC: $5.9 billion
BAC: $0.7 billion
JPM: $0.4 billion

Given that BAC and JPM have fairly insignificant amounts of core deposit intangibles on the balance sheet, I'd guess that the amortization charge is not much of a factor.
Title: Re: WFC - Wells Fargo
Post by: Mephistopheles on March 02, 2013, 11:52:04 AM
Note 10 of WFC's latest 10-K, "Intangible Assets", shows that the company amortized $1.4 billion in core deposit intangibles in 2012. I am not sure how Buffett arrived at the $1.5 billion figure. WFC also amortized $286 million of "customer relationship and other intangibles". I don't know all of what that number accounts for, but it seems like the customer relationship amortization is also a silly GAAP measure, and perhaps that amounted to $100 million or so, to which we add the $1.4 billion to arrive at the $1.5 billion # that Buffett mentioned?

Can anyone else shed a light?


Title: Re: WFC - Wells Fargo
Post by: wellmont on March 02, 2013, 12:00:43 PM
Note 10 of WFC's latest 10-K, "Intangible Assets", shows that the company amortized $1.4 billion in core deposit intangibles in 2012. I am not sure how Buffett arrived at the $1.5 billion figure. WFC also amortized $286 million of "customer relationship and other intangibles". I don't know all of what that number accounts for, but it seems like the customer relationship amortization is also a silly GAAP measure, and perhaps that amounted to $100 million or so, to which we add the $1.4 billion to arrive at the $1.5 billion # that Buffett mentioned?

Can anyone else shed a light?

note Buffett's language. he said About. 1.4 is 93% of 1.5.
Title: Re: WFC - Wells Fargo
Post by: Mephistopheles on March 02, 2013, 07:00:50 PM
Note 10 of WFC's latest 10-K, "Intangible Assets", shows that the company amortized $1.4 billion in core deposit intangibles in 2012. I am not sure how Buffett arrived at the $1.5 billion figure. WFC also amortized $286 million of "customer relationship and other intangibles". I don't know all of what that number accounts for, but it seems like the customer relationship amortization is also a silly GAAP measure, and perhaps that amounted to $100 million or so, to which we add the $1.4 billion to arrive at the $1.5 billion # that Buffett mentioned?

Can anyone else shed a light?

note Buffett's language. he said About. 1.4 is 93% of 1.5.

Hm, maybe, but usually he doesn't round that much.

From a learning perspective, I want to understand what the $286 million in customer relationship intangibles are, and if they should not count as a true expense either. Does anyone know?
Title: Re: WFC - Wells Fargo
Post by: jose on March 14, 2013, 03:01:55 PM
Looks like today's capital plan news release is vague on exactly how much they have increased their repurchase authority by.

Rough guess: If I use q4 2012 as a baseline, they purchased 48M shares back.  So if I annualize that up to about 200M shares per year and use today's price of 37, that puts it at about $7.4B per year as the baseline they will increase from.

It's a very rough guess. Wfc was cheaper then and I'm not sure how lumpy q4 was as far as repurchases.

Anyone have a better guess or info?
Title: Re: WFC - Wells Fargo
Post by: Parsad on March 14, 2013, 03:29:40 PM
Looks like today's capital plan news release is vague on exactly how much they have increased their repurchase authority by.

Rough guess: If I use q4 2012 as a baseline, they purchased 48M shares back.  So if I annualize that up to about 200M shares per year and use today's price of 37, that puts it at about $7.4B per year as the baseline they will increase from.

It's a very rough guess. Wfc was cheaper then and I'm not sure how lumpy q4 was as far as repurchases.

Anyone have a better guess or info?

They increased their dividend by a nickel every quarter as well.  Cheers!
Title: Re: WFC - Wells Fargo
Post by: jose on March 14, 2013, 03:50:37 PM
So if we assume a 20% increase to buybacks as well, we are looking at $9B of buybacks this year perhaps. That plus $6B in dividends puts us around $15B total.
Title: Re: WFC - Wells Fargo
Post by: Parsad on March 14, 2013, 05:35:01 PM
So if we assume a 20% increase to buybacks as well, we are looking at $9B of buybacks this year perhaps. That plus $6B in dividends puts us around $15B total.

I think that would be fair.  On a dollar for dollar basis relative to earnings and book value, the stock is cheaper right now than last year, so I can't see any reason why they would not buy back as many shares as last year...if not more!  Cheers!
Title: Re: WFC - Wells Fargo
Post by: Kiltacular on March 14, 2013, 05:52:45 PM
Going from memory, WFC has been buying back about 100 million shares per year -- not 200 million.  Someone double check me.

This amount has been enough to keep the sharecount constant.  A 20% increase would be another 20 million shares or so.  Not too exciting but at least a return.

Total capital return about $10 to $12 billion. 

That's without double checking the numbers.

Open to correction.
Title: Re: WFC - Wells Fargo
Post by: jose on March 14, 2013, 07:09:29 PM
I reread the press release, and it does say an in increase for "2013 compared to 2012".  So perhaps the 2012 total like Kiltacular proposes is a better baseline to go by than an annualized 4Q number.  Looking at the quarterlies, it appears they bought back 125M (7.6+53+16.5+48) shares in 2012. 

So by our 20% guess thats 150M shares or $5.5B repurchase in 2013.

Thats inline with what Kiltacular guess of $10B to $12B total.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on March 14, 2013, 07:50:29 PM
Wells CEO Pay Is Tops Among Peers

http://online.wsj.com/article/SB10001424127887324392804578360790276078084.html?mod=WSJ_business_management (http://online.wsj.com/article/SB10001424127887324392804578360790276078084.html?mod=WSJ_business_management)
Title: Re: WFC - Wells Fargo
Post by: valueinvesting101 on March 18, 2013, 09:17:30 AM
WFC also repurchased 35K warrants at 8.87. As per graph, it traded at those prices only on 11/14 and 11/15. They have been very stingy about buying these buy at cheap prices.

Buyback for last quarter for common was 42M.

Title: Re: WFC - Wells Fargo
Post by: Grenville on March 28, 2013, 10:00:11 PM
Saw this in the WSJ, short article linked below.

Pact between Amex & WFC on Amex new product called BlueBird (prepaid cards) that they introduced at Walmart.

Amex joined with Wells to get FDIC insurance on deposits through the Bluebird cards.

Prepaid Cards
AmEx, Wells in Card Pact
http://online.wsj.com/article/SB10001424127887324105204578384823308914266.html (http://online.wsj.com/article/SB10001424127887324105204578384823308914266.html)
or
search google for: "Financial Briefing Book: Mar. 27"
Title: Re: WFC - Wells Fargo
Post by: Parsad on April 23, 2013, 02:57:27 PM
Wells increases dividend 20%.  Cheers!

http://finance.yahoo.com/news/wells-fargo-company-announces-increased-200100651.html
Title: Re: WFC - Wells Fargo
Post by: BRK7 on April 23, 2013, 03:03:16 PM
Wells increases dividend 20%.  Cheers!

http://finance.yahoo.com/news/wells-fargo-company-announces-increased-200100651.html

So, they've now moved the quarterly dividend to 30c.  The WFC warrants, I beleieve, get adjusted when the dividend tops 34c.  Getting closer...  ;D
Title: Re: WFC - Wells Fargo
Post by: Hubris on April 24, 2013, 12:40:52 AM
I honestly am having a tough time deciding between whether the warrants are good value at these prices or not... I mean relative to other warrants. I don't like the high dividend threshold essentially because almost every back pays exactly at the threshold so as a warrant holder I receive absolutely no benefit! It is also added to my cost of capital for holding the warrants. So essentially I am paying a $9 premium to current market price and forgoing a dividend of $1.20 per year (That dividend will eventually be $1.36). So essentially its 1.20 + 1.36(4) + 9= 15.64 to get the leverage. Again even if you discount the dividends at 6% which gives them a value of 5.51 So combining the premium and discounted dividend your cost is 14.51. Well I can see Wells is the bank but you are certainly paying for it in the warrants. The big question is: Is there a Margin of Safety?
Title: Re: WFC - Wells Fargo
Post by: Phaceliacapital on April 24, 2013, 07:37:19 AM
How likely is it that WF does not increase their dividend by more than 13% over a 5 year life period?
Title: Re: WFC - Wells Fargo
Post by: Hubris on April 25, 2013, 02:19:08 PM
Great company no doubt. Very cheap relatively speaking especially comparing historical price to tangible book. Banks are valued based on earnings not to book value. So huge MOAT for wells fargo. DEPOSITS + MORTGAGES! I just think there might be cheaper warrants out there.
Title: Re: WFC - Wells Fargo
Post by: PLynchJr on May 21, 2013, 09:55:46 AM
WFC right around a 10 year high today and trading for 1.4 book.  Starting to wonder if it isn't time to lighten up a bit.  Hard to find anywhere else to put the money though.
Title: Re: WFC - Wells Fargo
Post by: wellmont on May 21, 2013, 10:16:42 AM
WFC right around a 10 year high today and trading for 1.4 book.  Starting to wonder if it isn't time to lighten up a bit.  Hard to find anywhere else to put the money though.
you may wish to revisit Buffett's view on whether book value is the proper metric to value wells fargo...
Title: Re: WFC - Wells Fargo
Post by: dcollon on June 03, 2013, 04:55:30 AM
Wells chief warns Fed over debt proposal

http://www.ft.com/cms/s/0/5e9d130c-cb76-11e2-8ff3-00144feab7de.html#axzz2V9ZR2rFL
Title: Re: WFC - Wells Fargo
Post by: Libs on June 21, 2013, 11:11:51 AM
I'll make my first post on one of my favorites.....

Ran some rough numbers on WFC this morning. I'm wondering what impact, say, a more normal, 4.5% 10-year rate would have on their earnings.

That's pretty much what the environment was in 2005, so I looked back.

Looking at their earning assets / funding sources report in Q1 2006, They were earning 8.01% on assets and paying 3.08% on their funding sources.

so NIM was 4.93%.

Today, WFC earns a paltry 3.86% on assets and pays .38%. So, NIM: 3.48%.

It's kind of scary to think it, but if NIM returns to 4.93% - and that's not out of line historically - WFC will earn an extra
(4.93-3.48) = 1.45% on current earning assets of $1.23 trillion.

That would add $17.8 B to pre-tax income. Using Brooklyn investor's 10X pre-tax Buffett valuation, you're talking about
$178 B increased market cap, or 82% above today. Or about $32 per share more.

I also notice WFC currently has $121B, or 10% of it's earning assets, earning just .36% in the category of "federal funds sold, securities purchased under resale agreements and other chort-term investments."

In 2006, they only had 1.5% of their earning assets in that category (and earned 5.19% there, lol).

I can see why Stumpf talks so eagerly about putting more $$ to work....

I'm no bank expert but maybe this is one reason Buffett's appetite for WFC is insatiable. They have tremendous leverage to rising interest rates. I guess the market agrees, judging by how well lenders are faring recently, vs say, GS.

Is it really this simple, or am I missing something?

Love this site - thanks to all for contributing.





Title: Re: WFC - Wells Fargo
Post by: JBird on June 21, 2013, 12:26:42 PM
A wonderful post Libs
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on June 21, 2013, 05:08:34 PM
Great first post.  Welcome.  I wonder how increased capital constraints will factor into the (formerly) normal profitability.  I guess only marginally...
Title: Re: WFC - Wells Fargo
Post by: Liberty on June 21, 2013, 05:25:47 PM
Welcome to the board, Libs. Way to start with a bang! :)
Title: Re: WFC - Wells Fargo
Post by: Kraven on June 21, 2013, 05:38:41 PM
I'll make my first post on one of my favorites.....

Ran some rough numbers on WFC this morning. I'm wondering what impact, say, a more normal, 4.5% 10-year rate would have on their earnings.

That's pretty much what the environment was in 2005, so I looked back.

Looking at their earning assets / funding sources report in Q1 2006, They were earning 8.01% on assets and paying 3.08% on their funding sources.

so NIM was 4.93%.

Today, WFC earns a paltry 3.86% on assets and pays .38%. So, NIM: 3.48%.

It's kind of scary to think it, but if NIM returns to 4.93% - and that's not out of line historically - WFC will earn an extra
(4.93-3.48) = 1.45% on current earning assets of $1.23 trillion.

That would add $17.8 B to pre-tax income. Using Brooklyn investor's 10X pre-tax Buffett valuation, you're talking about
$178 B increased market cap, or 82% above today. Or about $32 per share more.

I also notice WFC currently has $121B, or 10% of it's earning assets, earning just .36% in the category of "federal funds sold, securities purchased under resale agreements and other chort-term investments."

In 2006, they only had 1.5% of their earning assets in that category (and earned 5.19% there, lol).

I can see why Stumpf talks so eagerly about putting more $$ to work....

I'm no bank expert but maybe this is one reason Buffett's appetite for WFC is insatiable. They have tremendous leverage to rising interest rates. I guess the market agrees, judging by how well lenders are faring recently, vs say, GS.

Is it really this simple, or am I missing something?

Love this site - thanks to all for contributing.

There is nothing special about Wells Fargo in this regard. There is nothing wrong with your post but you've essentially set out the bullish case which is applicable to the banking sector in general. All else being equal the expectation is that the sequence of events you set out will apply to any number of banks. Welcome to the board.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on July 12, 2013, 10:04:28 AM
http://www.bloomberg.com/news/2013-07-12/wells-fargo-profit-rises-19-as-stumpf-renews-focus-on-expenses.html (http://www.bloomberg.com/news/2013-07-12/wells-fargo-profit-rises-19-as-stumpf-renews-focus-on-expenses.html)


Wells Fargo & Co. (WFC), the largest U.S. home lender, said second-quarter profit climbed 19 percent as the bank clamped down on expenses. Results beat analysts’ estimates, and the shares rose 1.7 percent in New York trading.

Net income advanced to a record $5.52 billion, or 98 cents a share, from $4.62 billion, or 82 cents, a year earlier, the San Francisco-based company said today in a statement. The average estimate of 33 analysts surveyed by Bloomberg, excluding some items, was 93 cents a share
Title: Re: WFC - Wells Fargo
Post by: dcollon on July 15, 2013, 04:11:36 AM
Wells Fargo to Acquire Hypothekenbank Frankfurt UK Commercial Real Estate Portfolio from Commerzbank
Monday, July 15, 2013 09:55:00 AM (GMT)


Wells Fargo & Company (NYSE: WFC), the leading commercial real estate lender in the U.S., has signed an agreement to acquire Commerzbank’s Hypothekenbank Frankfurt (formerly Eurohypo) U.K. commercial real estate portfolio. The transaction includes a £4.0 billion ($6.05 billion) portfolio of commercial real estate loans comprised of high-quality institutional assets throughout the U.K. with a focus in London. A portion of the portfolio, consisting of approximately £1.3 billion ($1.96 billion) of non-performing assets, will be acquired by Lone Star Funds, with Wells Fargo providing the financing. The transaction is expected to close in Q3 2013.

“This transaction, in combination with Wells Fargo’s long standing real estate expertise, will help create a best-in-class commercial real estate platform in the U.K.,” said Bill Vernon, executive vice president and group head who led the acquisition team for Wells Fargo Commercial Real Estate. “Hypothekenbank Frankfurt’s 20-year history in London, their recognition as a market leader in the commercial real estate industry, and our similar approaches to building quality assets and providing outstanding client service all add up to a great strategic expansion opportunity for Wells Fargo’s U.K. Commercial Real Estate business.”

Upon completion of the transaction, Wells Fargo will name Hypothekenbank Frankfurt industry veteran, Max Sinclair, as head of its London Commercial Real Estate office. In addition, Mike Acratopulo, Hypothekenbank Frankfurt’s managing director and head of origination, and a number of other Hypothekenbank Frankfurt employees are expected to become Wells Fargo team members, with most of those joining the London Commercial Real Estate team. Upon joining Wells Fargo, Sinclair will report to Chip Fedalen, executive vice president and group head who currently oversees Wells Fargo’s U.K. Commercial Real Estate operation and reports to Mark Myers, head of Commercial Real Estate at Wells Fargo. As part of the transaction, the Hypothekenbank Frankfurt office space at 90 Long Acre will become Wells Fargo’s new U.K. Commercial Real Estate headquarters.

“Given Wells Fargo’s position as the number one commercial real estate lender in the U.S. and our recent expansion of commercial real estate services in the U.K., this transaction is a significant investment in the future growth of our U.K. platform,” said Myers. “Max’s deep industry expertise and knowledge of the U.K. market will add significant strength to our Commercial Real Estate platform and we look forward to having him and the other outstanding Hypothekenbank Frankfurt team members join our Wells Fargo team in London.”

Serving both our corporate and commercial customers with approximately 700 team members throughout Europe, Wells Fargo’s primary European business lines include Global Financial Institutions, Global Banking, Global Transaction Banking, Capital Finance, Commercial Real Estate, Corporate Trust, Asset Management and Securities.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on July 25, 2013, 02:11:51 PM
Wells Fargo Quits 8 Mortgage Joint Ventures, Cuts 300 Jobs


http://www.bloomberg.com/news/2013-07-25/wells-fargo-quits-eight-mortgage-joint-ventures-cuts-300-jobs.html (http://www.bloomberg.com/news/2013-07-25/wells-fargo-quits-eight-mortgage-joint-ventures-cuts-300-jobs.html)
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on August 21, 2013, 02:55:49 PM
http://online.wsj.com/article/SB10001424127887324619504579027251867964752.html?mod=WSJ_business_MoreArticles (http://online.wsj.com/article/SB10001424127887324619504579027251867964752.html?mod=WSJ_business_MoreArticles)

Wells Fargo Cuts Jobs in Mortgage Unit

Bank Trims 2,300 Positions as Wave of Refinancing Ebbs.

Wells Fargo WFC -0.54%& Co. said Wednesday it is cutting 2,300 mortgage-related jobs across the country as a refinancing boom that helped spur profits continues to wane.

The fourth-largest U.S. bank by assets provided a 60-day notice of displacement to 2,300 employees in its home-lending unit, based in Des Moines, Iowa.

Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on September 09, 2013, 09:56:01 AM
http://online.wsj.com/article/SB10001424127887324094704579064863415657936.html?mod=WSJ_business_MoreArticles (http://online.wsj.com/article/SB10001424127887324094704579064863415657936.html?mod=WSJ_business_MoreArticles)

Wells Mortgage Revenue to Decline

CFO Says Bank Has Shed 3,000 Jobs Since July.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on September 12, 2013, 02:35:03 PM
http://www.bloomberg.com/news/2013-09-12/wells-fargo-said-to-be-selling-mortgage-servicing-rights.html (http://www.bloomberg.com/news/2013-09-12/wells-fargo-said-to-be-selling-mortgage-servicing-rights.html)

Wells Fargo Said to Be Selling Mortgage Servicing Rights
Title: Re: WFC - Wells Fargo
Post by: jay21 on September 15, 2013, 08:03:57 AM
http://www.economist.com/news/finance-and-economics/21586295-big-winner-financial-crisis-riding-high

"Two banks vie for the title of the world’s biggest by market capitalisation. One is Wells Fargo, a San Francisco-based institution; the other is China’s state-owned ICBC. It says something about the state of global finance that both are largely domestic, conventional lenders, and that both are buoyed and buffeted by the policies of their respective governments."

"As panic consumed the markets, it gazumped Citigroup to acquire Wachovia, which had been assembled over decades of costly and disruptive mergers. It may have been the best bank acquisition ever. In a single move, Wells doubled its branch count and added the eastern half of the country. As John Stumpf, the chief executive, likes to point out, a Wells branch or ATM is now within two miles of half of America’s homes and half of its firms."
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on September 18, 2013, 04:47:09 PM
http://www.bloomberg.com/news/2013-09-18/wells-fargo-cutting-1-800-jobs-in-mortgage-processing-business.html (http://www.bloomberg.com/news/2013-09-18/wells-fargo-cutting-1-800-jobs-in-mortgage-processing-business.html)


Wells Fargo Cutting 1,800 More Jobs in Mortgage Business
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on October 11, 2013, 06:33:12 PM


https://www.wellsfargo.com/downloads/pdf/press/3q13pr.pdf (https://www.wellsfargo.com/downloads/pdf/press/3q13pr.pdf)


Quote
Net income advanced in the third quarter to a record $5.58 billion, or 99 cents a share, from $4.94 billion, or 88 cents, a year earlier, the San Francisco-based company said today in a statement. The bank reclaimed $900 million from loan-loss reserves while mortgage banking revenue plunged 43 percent.




Quote
The bank reported declines in revenue, lending margins and the backlog of new mortgage loans. The efficiency ratio, which measures costs as a percentage of revenue, rose to 59.1 percent, missing the firm’s target of 55 percent to 59 percent. Noninterest expenses were little changed at $12.1 billion.

Revenue fell 3 percent to $20.5 billion. Profit before taxes and loss provisions, which some analysts use to gauge the bank’s core performance, declined 8 percent to $8.38 billion. Net interest margin, the difference between what a bank makes on lending and what it pays for funding, fell to 3.38 percent, a 0.08 percentage point drop from the second quarter.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on November 06, 2013, 10:45:13 AM
http://www.bloomberg.com/news/2013-11-06/wells-fargo-said-to-face-u-s-mortgage-bond-probe.html (http://www.bloomberg.com/news/2013-11-06/wells-fargo-said-to-face-u-s-mortgage-bond-probe.html)

Wells Fargo Said to Face U.S. Mortgage-Bond Probe
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on November 17, 2013, 10:41:58 PM
Wells Fargo CEO John Stumpf's Finance Industry Outlook for 2014

http://www.businessweek.com/articles/2013-11-14/finance-expert-outlook-2014-wells-fargos-john-stumpf (http://www.businessweek.com/articles/2013-11-14/finance-expert-outlook-2014-wells-fargos-john-stumpf)
Title: Re: WFC - Wells Fargo
Post by: jay21 on November 18, 2013, 05:18:19 AM
Wells Fargo CEO John Stumpf's Finance Industry Outlook for 2014

http://www.businessweek.com/articles/2013-11-14/finance-expert-outlook-2014-wells-fargos-john-stumpf (http://www.businessweek.com/articles/2013-11-14/finance-expert-outlook-2014-wells-fargos-john-stumpf)

This was a very good, short interview.  I think that his views are similar to the views of many on this board (especially those long the big banks).
Title: Re: WFC - Wells Fargo
Post by: benchmark on November 18, 2013, 09:06:46 AM
"In the third quarter, for every dollar in loans and deposits—our assets—we made about $1.53 or $1.55 after taxes. That’s right up there with what we did prerecession. On the other hand, our return on equity was 14.07 percent. We used to have a return on equity in the 20 percent range."

He seems to imply unless the regulation loosen up, ROE would not improve? I aslo wonder if this is true for jpm or bac.
Title: Re: WFC - Wells Fargo
Post by: LC on November 18, 2013, 09:17:15 AM
Is it regulation or slowing demand for credit? He mentions they have .80$ in loans for every dollar of deposits...down from 1:1 pre recession
Title: Re: WFC - Wells Fargo
Post by: ERICOPOLY on November 18, 2013, 10:22:06 AM
Is it regulation or slowing demand for credit? He mentions they have .80$ in loans for every dollar of deposits...down from 1:1 pre recession


He also said credit quality is the highest in his 33 years at the company...

Expressed differently "we've cut off credit to many people who would normally have been given credit throughout the other years that I've worked at the company.  This had led to a higher quality mix of credits".
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on November 18, 2013, 03:18:26 PM
Wells Fargo CEO John Stumpf's Finance Industry Outlook for 2014

http://www.businessweek.com/articles/2013-11-14/finance-expert-outlook-2014-wells-fargos-john-stumpf (http://www.businessweek.com/articles/2013-11-14/finance-expert-outlook-2014-wells-fargos-john-stumpf)

I like the index of companies in their industries; industry leader scoreboard or something.  Bloomberg Businessweek is really great imop.  I like Markets as well.
Title: Re: WFC - Wells Fargo
Post by: Kiltacular on November 18, 2013, 06:22:10 PM
Is it regulation or slowing demand for credit? He mentions they have .80$ in loans for every dollar of deposits...down from 1:1 pre recession


He also said credit quality is the highest in his 33 years at the company...

Expressed differently "we've cut off credit to many people who would normally have been given credit throughout the other years that I've worked at the company.  This had led to a higher quality mix of credits".

Your recent post about how low rates actually reduce the banks' appetite for credit risk was very insightful.  It's the kind of insight you get from someone with a lot of money on the line.  My portfolio would appreciate if you stay an active investor  :)

With respect to ROE mentioned in benchmark's post: Wells's ROE is slightly better than it appears because of the goodwill / deposit intangible write-offs that emerged from the Wachovia acquisition as compared to "pre-crisis".  But, even with the adjustment it is still not equivalent to the pre-crisis ROE.
Title: Re: WFC - Wells Fargo
Post by: kevin4u2 on November 18, 2013, 08:30:50 PM
"In the third quarter, for every dollar in loans and deposits—our assets—we made about $1.53 or $1.55 after taxes. That’s right up there with what we did prerecession. On the other hand, our return on equity was 14.07 percent. We used to have a return on equity in the 20 percent range."

He seems to imply unless the regulation loosen up, ROE would not improve? I aslo wonder if this is true for jpm or bac.

What about the fact they are now have higher equity capital requirements?  They will earn the same amount on assets but ROE will never return to pre-recession levels.  This is the same for any company, reduce leverage and ROE's will fall. 

Needless to say, it was idiotic that WFC was selling for Book Value back at the end of 2011.   
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on November 20, 2013, 09:38:03 PM
Wells Fargo CEO John G. Stumpf on Bloomberg (video)

http://www.bloomberg.com/video/framing-the-year-ahead-banking-Qg0ZEKy2RmyREr6dNAvXeA.html (http://www.bloomberg.com/video/framing-the-year-ahead-banking-Qg0ZEKy2RmyREr6dNAvXeA.html)
Title: Re: WFC - Wells Fargo
Post by: meiroy on November 20, 2013, 11:48:03 PM
Wells Fargo CEO John G. Stumpf on Bloomberg (video)

http://www.bloomberg.com/video/framing-the-year-ahead-banking-Qg0ZEKy2RmyREr6dNAvXeA.html (http://www.bloomberg.com/video/framing-the-year-ahead-banking-Qg0ZEKy2RmyREr6dNAvXeA.html)

Yeah, not really worth the time to watch it. The one thing interesting is that he said the reason they are not loaning out more is because they are being extra cautious due to being put back mortgages  -- done 5 or 10 years ago -- for really meaningless reasons.

So, looking at the glass half full, if that's the real reason and there's a number to it and a clear cause perhaps it can change for the better.  (cant blame a guy for dreaming)
Title: Re: WFC - Wells Fargo
Post by: dcollon on November 28, 2013, 05:04:01 PM
I really enjoyed this new Wells Fargo commercial (at least I think it's new)

http://www.youtube.com/watch?v=_3W23IZo8eg
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on December 21, 2013, 07:36:54 AM
http://dealbook.nytimes.com/2013/12/20/wells-fargo-poised-for-wall-street-run/ (http://dealbook.nytimes.com/2013/12/20/wells-fargo-poised-for-wall-street-run/)


Wells Fargo Poised for Wall Street Run
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on December 28, 2013, 09:32:03 AM
http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222,0,2502059,full.story#axzz2on9Y5d37 (http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222,0,2502059,full.story#axzz2on9Y5d37)

Wells Fargo's pressure-cooker sales culture comes at a cost


Employees say intense sales demands at Wells Fargo branches create a dilemma for many: cheat or risk being fired. Bank officials say they make ethical conduct a priority.

Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on December 28, 2013, 09:42:25 AM
http://www.latimes.com/business/money/la-fi-mo-wells-fargo-sales-pressure-20131228,0,5939661.story#axzz2on9Y5d37 (http://www.latimes.com/business/money/la-fi-mo-wells-fargo-sales-pressure-20131228,0,5939661.story#axzz2on9Y5d37)

Times investigation of Wells Fargo culture provokes strong reaction

Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on December 30, 2013, 09:34:44 AM
http://www.bloomberg.com/news/2013-12-30/wells-fargo-to-pay-fannie-mae-591-million-to-resolve-claims.html (http://www.bloomberg.com/news/2013-12-30/wells-fargo-to-pay-fannie-mae-591-million-to-resolve-claims.html)


Wells Fargo to Pay Fannie Mae $591 Million to Resolve Claims
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on January 08, 2014, 10:39:32 PM
Wells Fargo Creates SWAT Team to Keep Loans In-House: Mortgages

http://www.bloomberg.com/news/2014-01-08/wells-fargo-creates-swat-team-to-keep-loans-inhouse-mortgages.html (http://www.bloomberg.com/news/2014-01-08/wells-fargo-creates-swat-team-to-keep-loans-inhouse-mortgages.html)
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on January 14, 2014, 06:47:22 AM
4Q

https://www08.wellsfargomedia.com/downloads/pdf/press/4q13pr.pdf (https://www08.wellsfargomedia.com/downloads/pdf/press/4q13pr.pdf)

Fourth quarter 2013:
 Net income of $5.6 billion, up 10 percent from fourth quarter 2012
 Diluted earnings per share of $1.00, up 10 percent
 Revenue of $20.7 billion, compared with $21.9 billion
 Noninterest expense of $12.1 billion, down $811 million
 Efficiency ratio of 58.5 percent, improved by 30 basis points
 ROA of 1.47 percent, up 1 basis point
 ROE of 13.81 percent, up 46 basis points

• Fourth quarter 2013 results included:
o Strong loan and deposit growth:
 Total loans of $825.8 billion, up $26.2 billion from fourth quarter 2012
 Core loan portfolio up $39.9 billion1
 Total average core checking and savings deposits up $50.7 billion
Title: Re: WFC - Wells Fargo
Post by: meiroy on January 14, 2014, 11:36:02 PM
http://blogs.wsj.com/moneybeat/2014/01/14/as-wells-fargo-hits-profit-milestone-ceo-gives-credit-to-wachovia/

"“I don’t see the connectivity between being number one in something and having more regulatory or litigation scrutiny,” he said. “Companies are unique, what they bought and what the behaviors are of those companies they bought matters.” - Stumpf


Read: the people leading Wells Fargo have superior capital allocation skills.

Indeed.


Title: Re: WFC - Wells Fargo
Post by: Libs on January 15, 2014, 03:01:11 PM
Something I don't get about WFC.

At Q1 2011, they had net charge-offs of 3.5 Billion for the quarter. Their allowance for credit losses stood at $22.4B. If you annualize the charge offs, you get 22.4 / 14 = 1.74X.

Currently, the allowance stands at $14.5B. Charge-offs were under a billion last quarter.So the ratio is now 14.5 / 3.85 = 3.76X.

Why on earth is it higher now, when the existing loan book is so much better?

Are they monkeying with the numbers to smooth earnings, or is this driven by regulators?
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on January 23, 2014, 10:29:02 AM

Wells Fargo Sells Servicing Rights on $39 Billion in Mortgages

http://dealbook.nytimes.com/2014/01/22/wells-fargo-sells-servicing-rights-on-39-billion-in-mortgages/?module=BlogPost-Title&version=Blog Main&contentCollection=Mergers & Acquisitions&action=Click&pgtype=Blogs&region=Body (http://dealbook.nytimes.com/2014/01/22/wells-fargo-sells-servicing-rights-on-39-billion-in-mortgages/?module=BlogPost-Title&version=Blog Main&contentCollection=Mergers & Acquisitions&action=Click&pgtype=Blogs&region=Body)
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on January 27, 2014, 01:16:12 PM
Wells Fargo chief’s rise to the top



http://www.ft.com/intl/cms/s/2/74c30a12-7c81-11e3-b514-00144feabdc0.html#axzz2rcQ5KXps (http://www.ft.com/intl/cms/s/2/74c30a12-7c81-11e3-b514-00144feabdc0.html#axzz2rcQ5KXps)



Quote
This, for instance, is Stumpf’s explanation of why he arrives at his desk by 5.30am: “I get up at 4.30, because that’s what you do on the farm.” He adds: “I don’t think you need to get up early in life, but most people I know who are successful get up early.”
 
The farm in question is the 125 acres in Minnesota where he grew up as the second of 11 children. The girls slept in one bedroom, the boys in another. “We were very, very poor,” he says, and bankruptcy was often a threat.




Quote
With his silver hair and easy patrician style, Stumpf, who became chief executive six years ago, seems born to the corner office. But his rise to the top of the banking industry was far from ordained. After leaving school at 17 with poor grades and few prospects, he worked for a year in a bakery. He later joined the Minneapolis-based Norwest, which rode a wave of acquisitions – including those of Wells Fargo (whose name it took) in 1998 and Wachovia at the depths of the financial crisis a decade later – to reach the top of the US banking industry.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on February 15, 2014, 06:06:03 PM
Wells Fargo to Ease Mortgage Standards Slightly



Bank to Lower Minimum Credit Score Required for Some Mortgage Loans


http://online.wsj.com/article/SB10001424052702303704304579383180007672774.html?mod=WSJ_Markets_LEFTTopStories (http://online.wsj.com/article/SB10001424052702303704304579383180007672774.html?mod=WSJ_Markets_LEFTTopStories)
Title: Re: WFC - Wells Fargo
Post by: valueinvesting101 on February 21, 2014, 07:14:23 AM
Deflation Risk Growing in Wells Fargo Model


http://www.businessweek.com/news/2014-02-20/deflation-risk-growing-in-wells-fargo-model-cutting-research
Title: Re: WFC - Wells Fargo
Post by: gfp on March 26, 2014, 01:53:48 PM
http://www.businesswire.com/news/home/20140326006495/en/Wells-Fargo-Receives-Objection-2014-Capital-Plan#.UzM96a1dVnQ
Title: Re: WFC - Wells Fargo
Post by: gary17 on April 04, 2014, 08:23:18 AM
Hi, I am wondering if anyone has recently looked at WFC warrant.... seems like the premium is a lot less in comparison to BAC.  Does anyone know why?

thanks
Gary
Title: Re: WFC - Wells Fargo
Post by: racemize on April 04, 2014, 08:40:10 AM
Hi, I am wondering if anyone has recently looked at WFC warrant.... seems like the premium is a lot less in comparison to BAC.  Does anyone know why?

thanks
Gary

Mostly because WFC is already operating at normal capacity, so the future potential EPS/price growth is already normal.  People expect BAC to go up more, so the warrant prices in more growth.

That being said, WFC warrants are much cheaper than they have been.  Seems like a good time to buy them, absent anything terrible happening to banks/economy/etc.
Title: Re: WFC - Wells Fargo
Post by: Green King on April 04, 2014, 08:54:26 AM
Hi, I am wondering if anyone has recently looked at WFC warrant.... seems like the premium is a lot less in comparison to BAC.  Does anyone know why?

thanks
Gary

Mostly because WFC is already operating at normal capacity, so the future potential EPS/price growth is already normal.  People expect BAC to go up more, so the warrant prices in more growth.

That being said, WFC warrants are much cheaper than they have been.  Seems like a good time to buy them, absent anything terrible happening to banks/economy/etc.

How can you tell looks expansive VS cost of leverage for options ?
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on April 04, 2014, 12:55:04 PM

US bank dividends: on the rise
 

Average payout ratio will be 24 per cent of net profits this year



http://www.ft.com/intl/cms/s/3/f707002e-b9f2-11e3-a3ef-00144feabdc0.html?siteedition=intl#axzz2xrJvbggs (http://www.ft.com/intl/cms/s/3/f707002e-b9f2-11e3-a3ef-00144feabdc0.html?siteedition=intl#axzz2xrJvbggs)
Title: Re: WFC - Wells Fargo
Post by: gary17 on April 04, 2014, 01:01:06 PM
It is interesting how wfc has little volatility in comparison to BAC!
Title: Re: WFC - Wells Fargo
Post by: ourkid8 on April 04, 2014, 01:06:59 PM
Totally agree...  Lets hope BAC is maximizing their $4B repurchase authorization this quarter, especially since the stock is under $17! The problem is, i doubt they are and I bet they will evenly repurchase stock - $1B /quarter which is a bit disapointing but these damn regulators!!!

It is interesting how wfc has little volatility in comparison to BAC!
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on May 22, 2014, 04:31:16 PM
Warren Buffett's favorite bank isn't like the others



http://buzz.money.cnn.com/2014/05/20/wells-fargo-stock/ (http://buzz.money.cnn.com/2014/05/20/wells-fargo-stock/)
Title: Re: WFC - Wells Fargo
Post by: peter1234 on May 23, 2014, 12:15:55 AM
Thank you, great article. They even mention valuation at the end...

Quote
But if there is a negative for Wells Fargo, it is clearly its valuation. The stock trades at a premium to all of its peers on a price-to-earnings and book value basis. In other words, the market already knows that Wells Fargo is the best of the bunch. So if you want to own quality, you have to pay up for it.

 :)
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on June 16, 2014, 11:11:12 AM
Wells Fargo Nears Market-Value Milestone

http://online.wsj.com/articles/wells-fargo-nears-market-value-milestone-1402878547?mod=WSJ_hp_LEFTWhatsNewsCollection (http://online.wsj.com/articles/wells-fargo-nears-market-value-milestone-1402878547?mod=WSJ_hp_LEFTWhatsNewsCollection)
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on June 16, 2014, 12:09:32 PM
Vanilla Works for Wells Fargo


http://blogs.wsj.com/moneybeat/2014/06/16/vanilla-works-for-wells-fargo/?mod=WSJ_LatestHeadlines (http://blogs.wsj.com/moneybeat/2014/06/16/vanilla-works-for-wells-fargo/?mod=WSJ_LatestHeadlines)
Title: Re: WFC - Wells Fargo
Post by: dcollon on August 26, 2014, 10:52:50 AM
John Stumpf said government-backed agencies that buy mortgages, such as Fannie Mae, Freddie
Mac and the Federal Housing Administration, were too quick to accuse banks of faulty
underwriting on mortgages that default and force them to repurchase the soured loans, known as
“put-back” risk.

“If you guys want to stick with this program of ‘putting back’ any time, any way, whatever, that’s fine, we’re just not going to make
those loans and there’s going to be a whole bunch of Americans that are under-served in the mortgage market,” Mr Stumpf told the
Financial Times.
Title: Re: WFC - Wells Fargo
Post by: racemize on August 26, 2014, 12:01:53 PM
sounds similar to what Dimon was saying in the last conference call.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on September 10, 2014, 11:36:36 AM
Wells Fargo CFO: Fed's Capital Surcharge Idea Could Be a "Game Changer"

Bank Still Actively Seeking Acquisition Opportunities, Says Wells's Shrewsberry

http://online.wsj.com/articles/wells-fargo-cfo-still-actively-seeking-acquisition-opportunities-1410353325?mod=WSJ_LatestHeadlines (http://online.wsj.com/articles/wells-fargo-cfo-still-actively-seeking-acquisition-opportunities-1410353325?mod=WSJ_LatestHeadlines)
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on November 28, 2014, 09:30:57 AM
Wells Fargo Is the First Big Bank Simple Enough to Fail


http://dealbook.nytimes.com/2014/11/26/the-first-big-bank-simple-enough-to-fail/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Breakingviews&action=Click&pgtype=Blogs&region=Body (http://dealbook.nytimes.com/2014/11/26/the-first-big-bank-simple-enough-to-fail/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Breakingviews&action=Click&pgtype=Blogs&region=Body)
Title: Re: WFC - Wells Fargo
Post by: meiroy on January 14, 2015, 06:36:03 PM
WFC showing again why they deserve the premium.

Anyhow, a fantastic read:

http://www.thestreet.com/story/13011385/7/wells-fargo-wfc-earnings-report-q4-2014-conference-call-transcript.html

Wells Fargo (WFC) Earnings Report: Q4 2014 Conference Call Transcript


They cover the energy sector and what it means for their loan portfolio, the economy etc. so it's a great read even for those not invested in the company.

supplement: https://www08.wellsfargomedia.com/assets/pdf/about/press/2015/fourth-quarter-earnings-supplement.pdf
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on January 15, 2015, 09:57:55 PM
can someone explain to me why wells Fargo is considered better run than BAC?
at BAC, my checking account is free, I also get 100 free trades using merrill lynch as my stock broker. ATM is everywhere.
but WFC charges 5 dollar per month for the most basic checking account, and 6.50 per trade for its "PMA" prefered customer.
why would anyone open a checking account at wells Fargo?

also, when I shopped for mortgage last year, they also didn't have the most competitive rates.
Title: Re: WFC - Wells Fargo
Post by: peter1234 on January 15, 2015, 10:35:18 PM
can someone explain to me why wells Fargo is considered better run than BAC?
at BAC, my checking account is free, I also get 100 free trades using merrill lynch as my stock broker. ATM is everywhere.
but WFC charges 5 dollar per month for the most basic checking account, and 6.50 per trade for its "PMA" prefered customer.
why would anyone open a checking account at wells Fargo?

also, when I shopped for mortgage last year, they also didn't have the most competitive rates.

Invert: As an investor, would you rather own a company that charges for their products (WFC) or gives them away for free (BAC)?
 ;D
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on January 16, 2015, 05:45:07 AM
thanks. yes, I would certain like to own such a business. I am just trying to understand how does WFC has such a large deposit. I don't know anyone personally who has a checking account there.
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on January 16, 2015, 06:04:14 AM
thanks. yes, I would certain like to own such a business. I am just trying to understand how does WFC has such a large deposit. I don't know anyone personally who has a checking account there.

Biggest and most valuable deposits aren't retail deposits, they're business deposits.  An individual might put $250-500k in a bank at the most.  There are many businesses with millions, tens of millions, hundreds of millions and billions in cash on deposit at banks.

Typically a bank is better when more of their deposits are business deposits verses retail deposits.  So you might not personally know anyone who has a retail deposit, but start asking around with CFOs and Treasurers and you'll find a lot that bank with WFC.
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on January 16, 2015, 06:32:20 AM
I've got one there.  Legacy Wachovia.  They don't charge me any fees but I don't go in there and chat with the tellers two times a week.  Although in all honesty, if the other big banks were charging them I would probably tolerate some fees as I'm familiar with their online bill pay, apps, know where convenient arms and branches are, etc...  It seems to me there are some real switching costs, not huge but real.
Title: Re: WFC - Wells Fargo
Post by: valueinvesting101 on March 12, 2015, 01:31:08 PM
Has anyone looked at WFC warrants?

http://www.marketwatch.com/investing/stock/wfc.ws

It is trading at negative warrant premium. Gives nice leverage to play outside on WFC. WFC/WS should give return of 2.5 times of WFC going forward. You would lose out on dividend below 34 cents.

Given strong balance sheet of WFC in increasing interest rate environment and strong US economy, WFC should do better till warrant expiration on 10/28/18.
Title: Re: WFC - Wells Fargo
Post by: Sunrider on March 12, 2015, 10:48:38 PM
this is odd. I don't recall if you can exercise early but if so I'd expect this discrepancy to disappear soon (otherwise, buy warrant, exercise and sell for an immediate small profit).


Has anyone looked at WFC warrants?

http://www.marketwatch.com/investing/stock/wfc.ws

It is trading at negative warrant premium. Gives nice leverage to play outside on WFC. WFC/WS should give return of 2.5 times of WFC going forward. You would lose out on dividend below 34 cents.

Given strong balance sheet of WFC in increasing interest rate environment and strong US economy, WFC should do better till warrant expiration on 10/28/18.
Title: Re: WFC - Wells Fargo
Post by: Wilson-TPC on March 12, 2015, 11:49:32 PM
thanks. yes, I would certain like to own such a business. I am just trying to understand how does WFC has such a large deposit. I don't know anyone personally who has a checking account there.

Biggest and most valuable deposits aren't retail deposits, they're business deposits.  An individual might put $250-500k in a bank at the most.  There are many businesses with millions, tens of millions, hundreds of millions and billions in cash on deposit at banks.

Typically a bank is better when more of their deposits are business deposits verses retail deposits.  So you might not personally know anyone who has a retail deposit, but start asking around with CFOs and Treasurers and you'll find a lot that bank with WFC.

Well said.
Title: Re: WFC - Wells Fargo
Post by: Sunrider on March 13, 2015, 04:47:19 AM
Depends on the type of deposit - Basel III rules for liquidity ratios disincentives some corporate deposits because they are not "sticky".

thanks. yes, I would certain like to own such a business. I am just trying to understand how does WFC has such a large deposit. I don't know anyone personally who has a checking account there.

Biggest and most valuable deposits aren't retail deposits, they're business deposits.  An individual might put $250-500k in a bank at the most.  There are many businesses with millions, tens of millions, hundreds of millions and billions in cash on deposit at banks.

Typically a bank is better when more of their deposits are business deposits verses retail deposits.  So you might not personally know anyone who has a retail deposit, but start asking around with CFOs and Treasurers and you'll find a lot that bank with WFC.

Well said.
Title: Re: WFC - Wells Fargo
Post by: Libs on March 16, 2015, 03:01:07 PM
Has anyone looked at WFC warrants?

http://www.marketwatch.com/investing/stock/wfc.ws

It is trading at negative warrant premium. Gives nice leverage to play outside on WFC. WFC/WS should give return of 2.5 times of WFC going forward. You would lose out on dividend below 34 cents.

Given strong balance sheet of WFC in increasing interest rate environment and strong US economy, WFC should do better till warrant expiration on 10/28/18.

This is indeed interesting.

I was noodling on the impact dividends have on the strike price, and EM'd investor relations. They got right back to me with this.


https://www08.wellsfargomedia.com/downloads/pdf/invest_relations/warrant-notice.pdf


The current strike is $33.984.

The best guess I've seen is the strike will be around $32.78 at 2018 expiry, and one warrant will be worth 1.04 shares.


Title: Re: WFC - Wells Fargo
Post by: valueinvesting101 on March 17, 2015, 11:59:17 AM
What's your estimate for dividend till 2018?
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on March 17, 2015, 12:18:34 PM
thanks. yes, I would certain like to own such a business. I am just trying to understand how does WFC has such a large deposit. I don't know anyone personally who has a checking account there.

Biggest and most valuable deposits aren't retail deposits, they're business deposits.  An individual might put $250-500k in a bank at the most.  There are many businesses with millions, tens of millions, hundreds of millions and billions in cash on deposit at banks.

Typically a bank is better when more of their deposits are business deposits verses retail deposits.  So you might not personally know anyone who has a retail deposit, but start asking around with CFOs and Treasurers and you'll find a lot that bank with WFC.

The South in general has a much higher concentration of small businesses (doing business in the region), there are a lot of large businesses headquartered in the South because of taxes, and Wells Fargo has nearly no competitors in the region. It's a pretty fantastic situation that will probably continue to diverge.
Title: Re: WFC - Wells Fargo
Post by: Libs on March 17, 2015, 02:06:41 PM
What's your estimate for dividend till 2018?

This article has a good calulation i used:

http://seekingalpha.com/instablog/4581471-sa-editor-samir-patel/1880441-when-leverage-is-less-risky-the-case-for-wells-fargo-warrants
Title: Re: WFC - Wells Fargo
Post by: Arden on May 19, 2015, 06:53:09 AM
Last I checked the warrant is trading at 22.09 ,the strike is about 33.95, and the stock is trading at 56.38.

In essence, you can exercise your warrants right now and make 34 cents for each warrant (if you have a really good broker that is  :) ).

Title: Re: WFC - Wells Fargo
Post by: Libs on June 05, 2015, 11:07:15 AM
I finally bought these warrants today at $22.70. Made it my 3rd biggest position 8)

Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on June 05, 2015, 11:33:36 AM
Why now?
Title: Re: WFC - Wells Fargo
Post by: Libs on June 08, 2015, 03:10:49 PM
Why now?


What had held me back was a fear of further interest rate declines & its NIM impact.
Obviously I could be dead wrong, but if interest rates do normalize, WFC's going to make a lot more money. Also, it looks like housing is rebounding.




Title: Re: WFC - Wells Fargo
Post by: bennycx on June 08, 2015, 04:18:45 PM
Why warrants over the common?
Title: Re: WFC - Wells Fargo
Post by: racemize on June 08, 2015, 04:19:31 PM
Why warrants over the common?

Warrants are cheap enough that you might as well buy them over common.  Same with JPM.
Title: Re: WFC - Wells Fargo
Post by: Investmentacct on June 08, 2015, 05:30:14 PM
I have a question about WFC warrant excercise to the people who have excercised warrants previously.

For 1000 warrants purchased today at market price of 22.40 ; I would pay 22400.

Warrant Strike is 33.95 and expiry of Oct 2018.

Let's say at expiry WFC trades a 70

With above scenario (WFC @70 at expiry) : When I want to convert 1000 warrants bought today with 22400 USD; How much money would I need to add Or come up with in total to purchase/convert to 1000 shares of WFC ?

Please pardon me , if this sounds very basic question.

TIA.


Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on July 22, 2015, 08:46:34 AM
Wells Fargo & Co. Is the Earth’s Most Valuable Bank

Lender rides relatively simple business lines to title of bank with world’s largest market capitalization

http://www.wsj.com/articles/wells-fargo-co-is-the-earths-most-valuable-bank-1437538216 (http://www.wsj.com/articles/wells-fargo-co-is-the-earths-most-valuable-bank-1437538216)
Title: Re: WFC - Wells Fargo
Post by: benhacker on July 22, 2015, 12:34:33 PM
Investmentacct... the cash you would need to pony up at expiration = (shares * strike price)... strike will be lower by the time you exercise, but that's the math.

[Edit: As posted below, these are cashless exercise, my math only is correct if you want to maintain the same notional exposure to WFC after exercise as before... the effective cash to exercise would just be used to buy more common after the cashless conversion of the warrants]
Title: Re: WFC - Wells Fargo
Post by: Kiltacular on July 22, 2015, 07:49:29 PM
I have a question about WFC warrant excercise to the people who have excercised warrants previously.

For 1000 warrants purchased today at market price of 22.40 ; I would pay 22400.

Warrant Strike is 33.95 and expiry of Oct 2018.

Let's say at expiry WFC trades a 70

With above scenario (WFC @70 at expiry) : When I want to convert 1000 warrants bought today with 22400 USD; How much money would I need to add Or come up with in total to purchase/convert to 1000 shares of WFC ?

Please pardon me , if this sounds very basic question.

TIA.

Keep this in mind:

http://www.sec.gov/Archives/edgar/data/72971/000119312510123882/d424b7.htm

The warrants currently are exercisable for 110,261,688 shares of our common stock, which represent approximately 2.1% of our common stock outstanding as of March 31, 2010. However, because the warrants must be exercised on a cashless basis, we will withhold from an exercising warrantholder a number of shares with a value equal to the aggregate exercise price as payment for the exercise of the warrants. The actual number of shares that could be issued upon exercise of the warrants will depend upon the market price of our common stock at the time of exercise and other factors, including the adjustment provisions described above under “Description of Warrants—Adjustments to the Warrants,” and cannot be determined at this time. Other than the warrants, Treasury does not own any of our equity securities.

and

Exercise of the Warrants

The tax consequences of the exercise of a warrant that requires a cashless exercise are not clear. We expect that the warrants will be treated for U.S. federal income tax purposes as an option to receive a variable number of shares of our common stock on exercise with no exercise price. Alternatively, the exercise of the warrants could be treated as a recapitalization. In either case, a U.S. Holder generally will not recognize gain or loss upon exercise of a warrant except with respect to any cash received in lieu of a fractional share. A U.S. Holder will have a tax basis in the shares of our common stock received upon the exercise of a warrant equal to its tax basis in the warrant, less any amount attributable to any fractional share. The initial tax basis in a warrant of a U.S. Holder is the purchase price of the warrant. If the warrant is treated as an option to receive a variable number of shares of common stock, the holding period of common stock received upon the exercise of a warrant will commence on the day the warrant is exercised. If the exercise is treated as a recapitalization, the holding period of common stock received upon the exercise of a warrant will include the U.S. Holder’s holding period for the warrant.


Title: Re: WFC - Wells Fargo
Post by: Arden on July 23, 2015, 12:10:37 AM
I've read that, unlike "regular" options, if the warrants are not exercised until strike you simply lose them all and get nothing, is this true?

Is it possible to exercise them at any time?
Title: Re: WFC - Wells Fargo
Post by: wknecht on September 06, 2015, 06:37:07 PM
This is a really great speech/Q&A with Dick Kovacevich. I think this may have been posted somewhere else on this board (I don't recall where I found it).

https://youtu.be/XTh4ELp2VDc (https://youtu.be/XTh4ELp2VDc)
Title: Re: WFC - Wells Fargo
Post by: wescobrk on September 07, 2015, 09:05:09 AM
I've been buying wells call options expiring nov 20th.
I know it's massive risk due to expiring in about 3 months but I think I could have an easy double.
This is one damn good company.
Title: Re: WFC - Wells Fargo
Post by: Kiltacular on September 07, 2015, 09:18:18 PM
This is a really great speech/Q&A with Dick Kovacevich. I think this may have been posted somewhere else on this board (I don't recall where I found it).

https://youtu.be/XTh4ELp2VDc (https://youtu.be/XTh4ELp2VDc)

Enjoyed that -- thanks
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on November 30, 2015, 09:01:43 AM
At Wells Fargo, How Far Did Bank’s Sales Culture Go?

Regulators examine whether San Francisco-based lender pushed employees too hard to meet quotas

http://www.wsj.com/articles/at-wells-fargo-how-far-did-banks-sales-culture-go-1448879643 (http://www.wsj.com/articles/at-wells-fargo-how-far-did-banks-sales-culture-go-1448879643)
Title: Re: WFC - Wells Fargo
Post by: Own The Rails on January 19, 2016, 09:06:32 PM
Anyone considering buying (or buying more) at these prices? Solid 4Q earnings: https://www08.wellsfargomedia.com/assets/pdf/about/press/2015/q4-earnings-supplement.pdf
Title: Re: WFC - Wells Fargo
Post by: giofranchi on January 20, 2016, 02:05:29 AM
Anyone considering buying (or buying more) at these prices?

WFC is the only bank I follow closely and I like it very much at these prices. Given the fact I think interest rates will stay low for some time, I will probably wait a bit more to buy WFC… But I definitely think at these prices WFC is a good opportunity in the long run, whatever interest rates do.

Cheers,

Gio
Title: Re: WFC - Wells Fargo
Post by: qanary on January 28, 2016, 11:59:11 AM
Wells has 5.090B shares outstanding.  They're going to retire 350M => 4.74B.  IIRC, bank ownership is limited to 10%.  Buffett has 470,292,359 and will be almost at the limit after the purchases.  I'd wager he's buying hard (not just for this reason, the price is also great) while he can.
Title: Re: WFC - Wells Fargo
Post by: redskin on January 28, 2016, 12:30:59 PM
Wells has 5.090B shares outstanding.  They're going to retire 350M => 4.74B.  IIRC, bank ownership is limited to 10%.  Buffett has 470,292,359 and will be almost at the limit after the purchases.  I'd wager he's buying hard (not just for this reason, the price is also great) while he can.

If WFC's repurchases increase Berkshire's stake to above 10%, would they need to sell shares to get under the 10% level or would they just be restricted from buying more?
Title: Re: WFC - Wells Fargo
Post by: Jurgis on January 28, 2016, 12:36:39 PM
Wells has 5.090B shares outstanding.  They're going to retire 350M => 4.74B.  IIRC, bank ownership is limited to 10%.  Buffett has 470,292,359 and will be almost at the limit after the purchases.  I'd wager he's buying hard (not just for this reason, the price is also great) while he can.

If WFC's repurchases increase Berkshire's stake to above 10%, would they need to sell shares to get under the 10% level or would they just be restricted from buying more?

Don't have to sell, just restricted from buying more.
Title: Re: WFC - Wells Fargo
Post by: rpadebet on January 29, 2016, 10:40:05 AM
What is buy thesis on WFC? Why do we think it is undervalued?

Almost everyone acknowledges it is the best run bank. They have a good competitive position in retail, lowest funding costs etc. They are not big in investment banking which has become more capital intensive. All good. So where is the hair here for this to be undervalued?

Is multiple expansion from current levels of 12x the bet? Banking is cyclical and we might well be near the top for this cycle, so isn't 12x justified relative to the market?

If rates rise, they will probably make more spread income. So is investing here a direct wager on interest rate path? I am not so sure rates are going to go up from here. It is equally likely they may go down or stay here for long, but others might have different opinions. And if the rates do go up, it is very likely the average market multiple might contract thus jeopardizing the PE expansion thesis.

WFC also have one of the best cost/income ratios in the industry, which is awesome, but the way I see it there is little room for improvement there compared to say JPM or BAC. So where is the above normal earnings growth going to come from?

I like JPM better because they is still enough inefficiencies in their businesses for the management to work through. IB business may suck for the industry as a whole, but JPM seems to be taking share from others. I think IB is going to be a scale game where the one with the biggest scale/share manages a decent ROE while others struggle to earn cost of capital.

PE multiple on JPM is lower. Earnings can improve through management execution rather than hoping interest rates rise and multiple doesn't contract. Compared to BAC, which has much more room to improve, I still like JPM because JPM management has demonstrated the ability to execute. Management execution is the ding against BAC at least for me.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on January 29, 2016, 11:30:01 AM
What is buy thesis on WFC?

Ignore the buy thesis (since your hurdle rate may differ). What do you get if you own WFC:

12% ROE
3% Dividend
8% Retained earnings
---
8-11% anticipated return in a very low-risk bank

Say BAC and JPM are priced for 9-12% returns. Do you take the higher returns in the higher risk banks? Historically, this has been a bad bet.
Title: Re: WFC - Wells Fargo
Post by: Viking on January 29, 2016, 02:27:15 PM
Rpadebet, I hold WFC in place of holding a corporate bond. I am pretty confident they will deliver 8-10% per year total return moving forward. Between current dividend and share repurchases we are getting about 5% return of capital. I expect this amount to grow nicely in the coming years as they are approved to return more capital.

2 wild cards
1.) interest rate increase: at some point in time this will happen, likely slowly. This will juice the earnings of all the banks.
2.) when big banks PE multiples get re-rated higher by investors

In the short term you collect your growing dividend, the company reduces the share count. In the medium term with higher rates and a re-rating of the PE multiple you get a much, much higher stock price. Wells Fargo is a great example of slow but steady way to get rich.
Title: Re: WFC - Wells Fargo
Post by: Nnejad on January 29, 2016, 04:31:50 PM
What is buy thesis on WFC? Why do we think it is undervalued?

Almost everyone acknowledges it is the best run bank. They have a good competitive position in retail, lowest funding costs etc. They are not big in investment banking which has become more capital intensive. All good. So where is the hair here for this to be undervalued?

Is multiple expansion from current levels of 12x the bet? Banking is cyclical and we might well be near the top for this cycle, so isn't 12x justified relative to the market?

If rates rise, they will probably make more spread income. So is investing here a direct wager on interest rate path? I am not so sure rates are going to go up from here. It is equally likely they may go down or stay here for long, but others might have different opinions. And if the rates do go up, it is very likely the average market multiple might contract thus jeopardizing the PE expansion thesis.

WFC also have one of the best cost/income ratios in the industry, which is awesome, but the way I see it there is little room for improvement there compared to say JPM or BAC. So where is the above normal earnings growth going to come from?

I like JPM better because they is still enough inefficiencies in their businesses for the management to work through. IB business may suck for the industry as a whole, but JPM seems to be taking share from others. I think IB is going to be a scale game where the one with the biggest scale/share manages a decent ROE while others struggle to earn cost of capital.

PE multiple on JPM is lower. Earnings can improve through management execution rather than hoping interest rates rise and multiple doesn't contract. Compared to BAC, which has much more room to improve, I still like JPM because JPM management has demonstrated the ability to execute. Management execution is the ding against BAC at least for me.

"Preach"
Title: Re: WFC - Wells Fargo
Post by: rpadebet on January 30, 2016, 06:53:27 AM
Rpadebet, I hold WFC in place of holding a corporate bond. I am pretty confident they will deliver 8-10% per year total return moving forward. Between current dividend and share repurchases we are getting about 5% return of capital. I expect this amount to grow nicely in the coming years as they are approved to return more capital.

2 wild cards
1.) interest rate increase: at some point in time this will happen, likely slowly. This will juice the earnings of all the banks.
2.) when big banks PE multiples get re-rated higher by investors

In the short term you collect your growing dividend, the company reduces the share count. In the medium term with higher rates and a re-rating of the PE multiple you get a much, much higher stock price. Wells Fargo is a great example of slow but steady way to get rich.

Ok. I get the safe steady bond like comparison. I just don't think it's undervalued given the cyclical nature of the business.

I just think if there is some operational efficiencies to be gained in the business, that could be an additional source of non-macro earnings growth. OTOH I don't like too many inefficiencies to be addressed in a big bank, because it could point to structural problems and also turning around a big ship is harder and can take longer, even if executed well.

Nnejad - Not preaching. Just my opinion. Also wanted to see if there is something in WFC that I am overlooking.
Title: Re: WFC - Wells Fargo
Post by: bennycx on January 30, 2016, 07:52:20 AM
Wells Fargo will earn more from the tremendous growth in deposits experienced over the past few years while other banks are still fixing their problems. This allows them to increase their loan portfolio without being too levered and NIM will also increase when the economy picks up.
Title: Re: WFC - Wells Fargo
Post by: Nnejad on January 30, 2016, 09:50:31 AM
Rpadebet, I hold WFC in place of holding a corporate bond. I am pretty confident they will deliver 8-10% per year total return moving forward. Between current dividend and share repurchases we are getting about 5% return of capital. I expect this amount to grow nicely in the coming years as they are approved to return more capital.

2 wild cards
1.) interest rate increase: at some point in time this will happen, likely slowly. This will juice the earnings of all the banks.
2.) when big banks PE multiples get re-rated higher by investors

In the short term you collect your growing dividend, the company reduces the share count. In the medium term with higher rates and a re-rating of the PE multiple you get a much, much higher stock price. Wells Fargo is a great example of slow but steady way to get rich.

Ok. I get the safe steady bond like comparison. I just don't think it's undervalued given the cyclical nature of the business.

I just think if there is some operational efficiencies to be gained in the business, that could be an additional source of non-macro earnings growth. OTOH I don't like too many inefficiencies to be addressed in a big bank, because it could point to structural problems and also turning around a big ship is harder and can take longer, even if executed well.

Nnejad - Not preaching. Just my opinion. Also wanted to see if there is something in WFC that I am overlooking.

I meant it in the urban dictionary sense of the word: "said to give encouragement to a person dropping mad knowledge."
Title: Re: WFC - Wells Fargo
Post by: qanary on February 11, 2016, 07:53:41 PM
Kovacevich and Dimon were buying their shares today:

http://www.cnbc.com/2016/02/11/global-recession-not-coming-to-the-us-kovacevich.html
Title: Re: WFC - Wells Fargo
Post by: Mephistopheles on June 26, 2016, 11:08:35 AM
Picked up some shares on Friday. Best managed bank, low cost provider, very well capitalized to take advantage of the shit show in Europe. All for 11x earnings. If interest rates stay low, 11 multiple is really good. If rates shoot up, earnings will shoot up.
Title: Re: WFC - Wells Fargo
Post by: valueorama on September 08, 2016, 03:16:37 PM
Wells Fargo fined $185mm. Fires 5,300 employees.

http://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-bank-fees/index.html?iid=hp-toplead-dom (http://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-bank-fees/index.html?iid=hp-toplead-dom)

I guess the pressure to increase non-interest income is so great that Incentive plans pushed people to do all sort of things.
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on September 08, 2016, 03:24:43 PM
Scummy.  Did you catch that article in the Journal the other day about the "CDs" that banks are selling (via their securities arms) which are really very much like variable annuities?  BAC was mentioned in the article, but it sounded like they have all been doing it.
Title: Re: WFC - Wells Fargo
Post by: valueorama on September 08, 2016, 04:59:37 PM
Calling it phony accounts is sounding very benign. I would say it was outright fraud by the employees.
Title: Re: WFC - Wells Fargo
Post by: OracleofCarolina on September 08, 2016, 05:41:42 PM
Something is wrong with the system if you fire over 5000 people. What kind of crap is that???
Title: Re: WFC - Wells Fargo
Post by: Kuhndan on September 08, 2016, 06:44:02 PM
Sounds like a criminal enterprise to me.
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 08, 2016, 06:48:21 PM
My old Wells sales guy had opened up close to twenty accounts for me once. Just journaled money back and forth all the time to make them appear active. He used to tell me how they would keep giving everyone crap about various hurdles (daily hurdles in fact) which sounded like a bizarre way of doing business. I never felt comfortable buying the stock for that reason alone. 
Title: Re: WFC - Wells Fargo
Post by: eclecticvalue on September 08, 2016, 06:55:03 PM
This is also happening at Santander.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 08, 2016, 07:38:49 PM
Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

No kidding.  One of them should obviously be John Stumpf.  Yeah, Bank CEOs are way overpaid. 
Title: Re: WFC - Wells Fargo
Post by: wisdom on September 08, 2016, 08:21:29 PM
I have heard of cases in Canada where this is happening with mortgages but is buried by the banks everytime they catch people. The worst one was this person doing mortgages on lots as if it had a house on it.
Title: Re: WFC - Wells Fargo
Post by: Liberty on September 09, 2016, 06:27:04 AM
Matt Levine on this:

https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts
Title: Re: WFC - Wells Fargo
Post by: Travis Wiedower on September 09, 2016, 06:54:08 AM
Matt Levine on this:

https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts

Reminded me of Charlie Munger's quote: "Perhaps the most important rule in management is 'Get the incentives right.'" It's a lot easier said than done though.
Title: Re: WFC - Wells Fargo
Post by: whiterose on September 09, 2016, 07:13:58 AM
It's not only an issue related to WFC, but Stumpf tops the list:

https://www.thenation.com/article/your-tax-money-is-subsidizing-wall-street-bonuses/

Quote
Say, for example, you are Wells Fargo chairman John Stumpf. Between 2012 and 2015, you received $155 million in “performance-based” pay above your actual salary, which is already quite generous. You also saved your company a lot of money by getting paid so much—according to a new study by the Institute for Policy Studies, Wells Fargo was able to claim a $54.2 million tax subsidy in those years based solely on Stumpf’s pay.
Title: Re: WFC - Wells Fargo
Post by: bearprowler6 on September 09, 2016, 08:07:44 AM
Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

No kidding.  One of them should obviously be John Stumpf.  Yeah, Bank CEOs are way overpaid.

I will leave it to others to debate on here Stumpf's role in all of this---in my view however he either knew or should have known what 5000 of the workers in his bank were doing. I also agree that all bank executives are grossly overpaid.

What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

Several months ago a poster on here suggested that many skeletons will be uncovered once the dynamic duo of Buffett and Munger are no longer involved with Berkshire. I share this view and suggest that the news on Wells is but one example of the type of information on Berkshire Hathaway investments/holdings that will become common place at that time.
Title: Re: WFC - Wells Fargo
Post by: Patmo on September 09, 2016, 08:32:14 AM
The good old classic "meet your target - or else" tone at the top will invariably lead to this kind of thing... 100% probability of happening. Morally speaking, these 5k workers are not the ones that should have been fired. One soldier goes rogue, it's the soldier's fault. A whole platoon goes rogue, it's the general's fault...

I'm a little surprised they have that kind of vision over at WFC but not that much - after all, a bank is a bank is a bank...
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on September 09, 2016, 09:53:29 AM
Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

No kidding.  One of them should obviously be John Stumpf.  Yeah, Bank CEOs are way overpaid.

I will leave it to others to debate on here Stumpf's role in all of this---in my view however he either knew or should have known what 5000 of the workers in his bank were doing. I also agree that all bank executives are grossly overpaid.

What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

Several months ago a poster on here suggested that many skeletons will be uncovered once the dynamic duo of Buffett and Munger are no longer involved with Berkshire. I share this view and suggest that the news on Wells is but one example of the type of information on Berkshire Hathaway investments/holdings that will become common place at that time.

I won't be surprised.
Title: Re: WFC - Wells Fargo
Post by: Libs on September 09, 2016, 10:38:08 AM
I have been a WFC fan but this bothers me, and I think there are other similar shoes to drop. Specifically, the in-branch "financial advisors" who churn customers in and out of mutual funds and other commission products. I know a guy who did this...it's quite sleazy. They would sift through customer accounts and call on people with "extra cash" or CD's expiring. I'm sure it's also true at Chase, B of A, etc.

These in-branch guys have huge pressures to produce, also.

At some point there will be regulatory blow-back about this.
Title: Re: WFC - Wells Fargo
Post by: notorious546 on September 09, 2016, 11:09:30 AM
What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

why do they have a duty to report this publically? i dont see why or how that is the case.
Title: Re: WFC - Wells Fargo
Post by: bearprowler6 on September 09, 2016, 11:52:21 AM
What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

why do they have a duty to report this publically? i dont see why or how that is the case.

I suggest you check out the various definitions of "duty" on line. I particularly like the definition offered by BusinessDictionary.com regarding scope of employment:

"Responsibility of conduct, function, or performance that arises from an express or implied contract, or from the fact of holding an office or position"

Title: Re: WFC - Wells Fargo
Post by: johnny on September 09, 2016, 02:43:37 PM
I remember during my last few years as a Wells customer getting hilariously heavy savings-account pressure every time I had to do something that required a banker's assistance. It would just be a massive full-court press pitch followed by me asking what the rate was and getting a reply like "0.05%".

As embarrassing as this is, is it apparent that this represents a massive moral failure at management level? It just seems like a rather stupidly designed and naively implemented incentive system. All of those phantom accounts being made couldn't have been very lucrative for the company; I know none of the 3 savings accounts I ended up getting opened resulted in an increase in deposits (or even a meaningful change from C to S).

Maybe I missed it, but I just don't see this being a disaster?
Title: Re: WFC - Wells Fargo
Post by: valueorama on September 09, 2016, 03:09:06 PM
The thing that worries me, is this quote from Buffett "There's never just one cockroach in the kitchen?"
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on September 09, 2016, 08:47:16 PM
Here's another random data point on WFC.  I received notice today that their 2014 insider ownership filing with the Federal Reserve is finally complete.  This is nearly a year late, and the information in this report doesn't vary much from the SEC filing.  The fact that it took them so long to get 2014 correct is just strange. 

In terms of who this damaged.  It damaged the consumers who had accounts opened in their name, credit card accounts that hit their credit reports and those who had to pay service fees on accounts they never knew they owned.

But the bigger issue as noted in this thread is this is indicative of a management failure.  It wasn't a single rogue employee, when 100 are fired maybe it's a single manager whose to blame.  When it's 1,000 maybe a division director, but when 5,300 are let go there is some rot reaching fairly high up.

I've worked with public companies that had screwed up incentives.  Management was always a few strides further ahead compared to the line employees.  In cases where employees had to waste/abuse company resources management always took the "hear no evil, see no evil" approach as if nothing was happening.  But what the employees did furthered their own goals and added to their bonus, so it was in their best interest to ignore this.

Incentives were wrong, and internal controls were lacking.  I've heard the same accusation levied at JPM as well.  Sometimes lack of controls results in The London Whale, other times it results in millions of fake accounts. 
Title: Re: WFC - Wells Fargo
Post by: mikek on September 09, 2016, 10:14:12 PM
I worked at Wells Fargo 10 years ago at the retail level and this was all going on.  I left a long time ago but it's still going on today and it was going on a decade before I got there.   The wrong people have been fired. This goes way up from the district managers, market directors, Regional managers, all the way up to the CEO.  This was beyond systematic and was actually encouraged.  There are sales jobs and there is the Wells Fargo sales way.  A lot of articles are portraying that this was from greedy bankers and branch managers at the banking level but in reality this was forced on the retail level.  The things that went on there were beyond laughable.  I would wager that a huge percentage of bank employees were doing shady stuff to just keep their jobs.  The people at the bank level weren’t doing these things to make money.   I would wager that those people were making an extra 100-500 dollars per quarter due to unethical behavior.  They were doing it because they were being constantly harassed by upper management.

Picasso-

"My old Wells sales guy had opened up close to twenty accounts for me once. Just journaled money back and forth all the time to make them appear active. He used to tell me how they would keep giving everyone crap about various hurdles (daily hurdles in fact) which sounded like a bizarre way of doing business. I never felt comfortable buying the stock for that reason alone."

100% true and was very common.  These guys honestly managed to the daily numbers.   
 
Now there are obviously wide ranges of shady stuff, a lot of it wasn't considered fraud but people were doing things that didn't make any logical sense to just meet the numbers.  I would be completely shocked if there were actually only 2 million fake accounts.  Branch Managers were taking 4 conference calls a day- every 2 hours to report the numbers.  The incentive system was setup so that a 13 year old teen checking account with 1 penny would give a sales person the same as having a client open up a 10 million dollar account.  It was beyond insane.  You could be the #1 one banker in the district and have a slow week and next thing you knew they were threatening to write you up.  This was not a case of some rogue employee's doing dumb stuff; it was and is the actual culture at Wells Fargo.  I don't think much will change there, the only way you change the system is you actually go after the people that are creating that environment.  You need to go after the executives criminally and make them personally liable.

Patmo-

"The good old classic "meet your target - or else" tone at the top will invariably lead to this kind of thing... 100% probability of happening. Morally speaking, these 5k workers are not the ones that should have been fired. One soldier goes rogue, it's the soldier's fault. A whole platoon goes rogue, it's the general's fault..."

100% correct with this line of thought.  Trust me, they might not be doing actual fraud today but they are still doing things that the average person would be shocked about.  They are well over the line of borderline ethical behavior.    There whole Great- go for eight cross sell products is a complete sham and that is why they have stopped promoting that in the annual reports.  The fine is a joke; this is why stuff like this keeps happening.  You put some executives in jail and the system changes over night.  As for the stock price of Wells Fargo, I doubt it will have much impact because the system is pretty much exactly the same.

This article sums up the situation perfectly; this exact stuff was going on a decade ago.

http://money.cnn.com/2016/09/09/investing/wells-fargo-phony-accounts-culture/

"Employees and the California lawsuit both allege that higher-ups at Wells Fargo also share in the blame for the fraud."

"Wells Fargo has "known about and encouraged these practices for years," the California lawsuit said. "Wells Fargo has engineered a virtual fee-generating machine, through which its customers are harmed, its employees take the blame, and Wells Fargo reaps the profits."

"The culprit in this case in not just the individuals involved, but the corporate culture itself," said Julie Ragatz, director of the Center for Ethics in Financial Services at the American College of Financial Services. "
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on September 10, 2016, 04:31:20 AM
I have been a WFC fan but this bothers me, and I think there are other similar shoes to drop. Specifically, the in-branch "financial advisors" who churn customers in and out of mutual funds and other commission products. I know a guy who did this...it's quite sleazy. They would sift through customer accounts and call on people with "extra cash" or CD's expiring. I'm sure it's also true at Chase, B of A, etc.

These in-branch guys have huge pressures to produce, also.

At some point there will be regulatory blow-back about this.

I am a WFC customer (Wellstrade and checking account) and it is clear that there is a lot of pressure to sell more products. I got bombarded by emails and snail mails and every time, I went in a branch (which now very rarely happens, maybe once a year), they try to sell me insurance or a savings account.

With that much pressure, it is not surprising that employees start to crack and game the system, some for their benefit, but many just keep the job. I suspect with branch traffic going down due to mobile and online transaction, that the sales pressure must be even higher - what else is the branch really good for?

Just from my own employment experience, there is a very fine line between incentivizing people and applying pushing productivity and basically forcing people to cheat. If you get a make your number or else management, you will have a certain percentage of people cracking and starting to cheat for sure. from my experience, most do it more for fear, than for benefit.

It seems like WFC has overstepped that boundary.
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on September 10, 2016, 06:09:14 AM
Phantom sales as a result of poorly designed incentive, compensation systems and lack of oversight/ethics?  Reminds me of someone...
Title: Re: WFC - Wells Fargo
Post by: Palantir on September 10, 2016, 02:33:03 PM
I thought this was the Warren-approved folksy bank? Say it ain't so!
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 10, 2016, 04:06:15 PM
What I would like to shine the light on however is the complete lack of direct response from both Buffett and Munger related to this shameful manner. Due to their very vocal support of Wells and praise of Stumpf over the years it is perhaps not surprising but nonetheless  disappointing they both remain silent. They both have a duty and moral obligation to provide a public response to this situation.

why do they have a duty to report this publically? i dont see why or how that is the case.

I suggest you check out the various definitions of "duty" on line. I particularly like the definition offered by BusinessDictionary.com regarding scope of employment:

"Responsibility of conduct, function, or performance that arises from an express or implied contract, or from the fact of holding an office or position"

IMHO its bad optics for Buffett if we dont see some action here, specifically the firing of the top three executives. 

The US really should have put some bankers in jail - not saying the WFC guys but certainly the Washington Mutual guy, and Angelo Mozilla.  It would get the attention of everyone. 

What blows my mind is that these aggressive tactics alienate customers, employees (whose families and friends use banks), and result in fines and the inevitable lawsuits.  It would be an interesting exercise to work out how much money this sort of clusterf*** actually makes, versus taking a more honest, low key route to business development.  Same with Libor.  It wont surprise me to see billions in class action lawsuits stemming out of this from former employees, and customers.  Whether they are ultimately successful or not, the result will be costly and severely damaging to WFCs reputation and trust.  Trust would seem to be an important quality for a bank.  WFC - soon to be the new BAC - the whipping boy for Government. 

So, do people still think that 20 million a year CEOs are worth the money? 

Phantom sales as a result of poorly designed incentive, compensation systems and lack of oversight/ethics?  Reminds me of someone...

Steve Cohen?

Title: Re: WFC - Wells Fargo
Post by: shalab on September 10, 2016, 07:17:45 PM
FWIW - I have accounts in WFC. The service has been good and I never experienced anything mentioned in this thread. They do try to sell multiple products to you and I don't see anything wrong with it.
Title: Re: WFC - Wells Fargo
Post by: Green King on September 12, 2016, 04:57:08 AM
Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

No kidding.  One of them should obviously be John Stumpf.  Yeah, Bank CEOs are way overpaid.

https://en.wikipedia.org/wiki/Wells_Fargo

"Wells Fargo confirmed to CNNMoney that it had fired 5,300 employees over the last few years related to the shady behavior. Employees went so far as to create phony PIN numbers and fake email addresses to enroll customers in online banking services, the CFPB said."

Number of employees
265,200 (2015)
5300/265200= 2%
Title: Re: WFC - Wells Fargo
Post by: Junto on September 12, 2016, 05:26:30 AM
You cannot use size to justify this problem. 2% or 1%.... any action whereby the bank has allowed 2 million accounts to be opened that were not authorized by the customer is completely unethical, demonstrating poor control and audit procedures, and more depth to the problem than WFC is willing to admit. It is an embarrassment to WFC and a huge embarrassment to the banking industry which only projects more negative feelings when the industry has been yearning for less.

As a community banker, I find it deplorable.
Title: Re: WFC - Wells Fargo
Post by: warrior on September 12, 2016, 08:12:47 AM
All big banks have  aggressive targets for retail branches. banking industry has been changing dramatically  for the last few years  . Foot traffic at the  retail branch level is declining in same areas  double digit y/y, due to new technologies.   Targets are varies among the big banks  . in some cases  with daily /weekly conference calls regarding what is on the “work” or closed.  The main component of targets are :
 1) volume or size of the closing business, that includes all credit products such as - mortgages, line of credits  loans etc…  Investments- mutual funds, term deposits, stocks portfolios  etc…
 2)  Units or productivity per FTE ,how many product and services were sold  , that includes ,all  accounts, credit cards, singing up in to on line banking ,contributions into register plans, financial planning  etc…
 3) revenue or profitability for every product sold , for example if adviser opens up fee based account instead of no fee bank account it will translate into  higher revenue for the branch . adviser  does not price to much for term deposit or mortgages, sells high cost funds not ETFS… all  gives more revenue , where   branch is measured for . I saw when people at the branch would open 5 fees based accounts and  5 credit cards for one customer, and then to closed after 2 weeks just to get the revenue target.  Unfortunately,  with big targets to hit, there some    pressure for employees to cross the line and start to behave unethically.
 4) Customer’s experience- survey is conducted every week for the branch to see what was client’s experience at the branch.  In general, branch need to achieve certain level of rating  or satisfaction  to hit the target.
It is not only WFC, I would not be surprised to see others on this list. Once a year, before bank’s fiscal year end new targets comes from the top, from executive committee. To please shareholders and increase R/R on the business, usually target for retail banking increases y/y.
Small banks,   Community banks, credit union  completely different ball game

 
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 13, 2016, 08:55:06 AM
This is clearly another case of misguided incentives. For a company as large as Wells, these kind of things will happen. Let's see how management responds to this.
Title: Re: WFC - Wells Fargo
Post by: Pelagic on September 13, 2016, 12:22:41 PM
I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 13, 2016, 01:37:57 PM
I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

We seem to have lost all sense of perspective on this "scandal". The "fraud" was widespread but it was almost comically small.

I don't know why the reaction has been so over-the-top. I guess because WFC is considered the best big bank or Buffett owns it. WFC has done many deplorable things before, during, and after the financial crisis. I doubt this scandal would make the top 10 list of worst things WFC has done this decade.
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 13, 2016, 01:56:58 PM
I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

The regulators have said that 2 million accounts (1.5m deposit accounts and 0.5m credit card accounts) MAY have been fraudulently created. The facts on this is still not completely clear. The average refund to consumers is $25.

And in some cases, the accounts were created and closed quickly after so that a) the employee gets credited for creating an account and b) his supervisors don't find out.

http://www.nytimes.com/2016/09/10/business/dealbook/wells-fargo-apologizes-but-doesnt-admit-misconduct.html
Title: Re: WFC - Wells Fargo
Post by: Junto on September 13, 2016, 02:13:56 PM
I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

We seem to have lost all sense of perspective on this "scandal". The "fraud" was widespread but it was almost comically small.

I don't know why the reaction has been so over-the-top. I guess because WFC is considered the best big bank or Buffett owns it. WFC has done many deplorable things before, during, and after the financial crisis. I doubt this scandal would make the top 10 list of worst things WFC has done this decade.

It's because it is by definition identity theft. http://www.ncsl.org/research/financial-services-and-commerce/identity-theft-state-statutes.aspx

They used other people's private personal information for financial gain. They may have been frauding WFC in its closed loop (in a myopic way) but it doesn't change the fact it was used for gain. Unethical in so many ways. As I previously stated, deplorable activity.

I agree in the fact that more of the penalty should have been returned to those whose identities were abused.
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on September 13, 2016, 04:02:05 PM
I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.
The $185M fine itself is laughable. WFC made $21.5bn last year, this fine is less than 1% of those profits. It's basically a $80 speeding ticket to the average person.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 13, 2016, 06:41:46 PM
I saw that Wells paid out $5 million to customers for the 2 million accounts they created. Is this a joke? They open up fake accounts in your name and offer $2.50 per account to make things ok? If I was one of those customers I would have told them to keep it and left for another bank. It's also a bit ironic regulators got $185 million in fines over this while the customers affected got $5 million.

We seem to have lost all sense of perspective on this "scandal". The "fraud" was widespread but it was almost comically small.

I don't know why the reaction has been so over-the-top. I guess because WFC is considered the best big bank or Buffett owns it. WFC has done many deplorable things before, during, and after the financial crisis. I doubt this scandal would make the top 10 list of worst things WFC has done this decade.

It's because it is by definition identity theft. http://www.ncsl.org/research/financial-services-and-commerce/identity-theft-state-statutes.aspx

They used other people's private personal information for financial gain. They may have been frauding WFC in its closed loop (in a myopic way) but it doesn't change the fact it was used for gain. Unethical in so many ways. As I previously stated, deplorable activity.

I agree in the fact that more of the penalty should have been returned to those whose identities were abused.

Well, let's ignore the massive identity theft. But can we at least agree that this is really old news:
http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html

This article is 3 years old. The only "news" is the fine. And frankly, it is much smaller than one would expect based on the LA Times report.
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on September 13, 2016, 10:27:36 PM
John Stumpf interview on CNBC:

http://www.cnbc.com/2016/09/13/wells-fargo-ceo-john-stumpf-says-he-will-not-resign.html

I apologize if it is already posted. I thought Jim Cramer did a good job (I know, it is hard to believe).
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 14, 2016, 05:52:12 AM
I would also say that given the current political environment and rhetoric against big banks, the media has tended to obfuscate facts on things like this. Let's get all the facts before coming to conclusions.
Title: Re: WFC - Wells Fargo
Post by: DCG on September 14, 2016, 06:14:48 AM
Obviously the biggest risk here is that this can significantly tarnish WFC's reputation, and discourage people/companies from doing business with them. They had a reputation of being on of the few big bands that didn't engage in shady business practices, so this could have somewhat long-term implications.


I haven't sold any of my WFC shares yet, as I'm still trying to see how this will play out.
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 14, 2016, 06:53:07 AM
Obviously the biggest risk here is that this can significantly tarnish WFC's reputation, and discourage people/companies from doing business with them. They had a reputation of being on of the few big bands that didn't engage in shady business practices, so this could have somewhat long-term implications.


I haven't sold any of my WFC shares yet, as I'm still trying to see how this will play out.

This isn't a new issue though.  KC posted a 3 year old article on this topic.  All the customers that may have been pissed off by this already were pissed off, so shouldn't this already be in the deposit growth numbers? 
Title: Re: WFC - Wells Fargo
Post by: DCG on September 14, 2016, 07:59:46 AM
Obviously the biggest risk here is that this can significantly tarnish WFC's reputation, and discourage people/companies from doing business with them. They had a reputation of being on of the few big bands that didn't engage in shady business practices, so this could have somewhat long-term implications.


I haven't sold any of my WFC shares yet, as I'm still trying to see how this will play out.

This isn't a new issue though.  KC posted a 3 year old article on this topic.  All the customers that may have been pissed off by this already were pissed off, so shouldn't this already be in the deposit growth numbers?


The media coverage can influence people though.
Title: Re: WFC - Wells Fargo
Post by: mbreject on September 14, 2016, 09:43:00 AM
This is clearly another case of misguided incentives. For a company as large as Wells, these kind of things will happen. Let's see how management responds to this.

With how many complaints that have been swept under the rug over the years, I'd say that management encourages this kind of behavior. Those 5,300 employees didn't come up with this on their own; they were taught.

That said, this is probably happening at all the big banks. I opened up an account with USB a few years ago and the teller (or possibly, someone higher up) opened up a different one than the one I signed up for. It came with things I didn't want or need like a debit card. I called to complain a few times with no luck. At the end of the day, I figured it wasn't worth the hassle of closing the account and looking for another bank and just didn't activate the card.
Title: Re: WFC - Wells Fargo
Post by: Grenville on September 14, 2016, 11:45:40 AM
Wells Fargo CEO John Stumpf Called to Account
http://www.wsj.com/articles/wells-fargo-ceo-john-stumpf-called-to-account-1473808533 (http://www.wsj.com/articles/wells-fargo-ceo-john-stumpf-called-to-account-1473808533)

Quote
...
The outspoken and sometimes combative Mr. Dimon is perhaps the most recognizable face of U.S. banking. Before and after the London whale episode unfolded, Mr. Dimon cut a very public figure, not always to his benefit. He initially referred to reports of trading problems in his bank as “a tempest in a teapot.”

J.P. Morgan chief James Dimon was quick to address the ‘London whale’ issue, once the bank owned it.

Mr. Dimon was later forced to eat those words, telling the Senate panel he had been “dead wrong.” But that willingness to fall on his own sword ultimately worked to

Mr. Dimon’s advantage. So, too, did his blunt talk about the nature of the problem. “We know we were sloppy, we know we were stupid, we know there was bad judgment,” he said in a television interview.

He and J.P. Morgan were also quick to address the issue, once they owned it. The bank held an investor call immediately after announcing the problem to markets.
….

And, so far, Mr. Stumpf’s communications strategy has been far less direct than that of Mr. Dimon.

Before interviews Tuesday, including with the Journal, his only public communication since the settlement announcement Thursday—in which the bank neither admitted nor denied wrongdoing—had been a short statement issued by the company. When he did speak, Mr. Stumpf focused on junior employees’ role in breaking rules and not following the bank’s ethics, rather than cultural or structural issues at the bank. Wells Fargo’s chief financial officer echoed a similar sentiment earlier Tuesday.
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 14, 2016, 11:51:22 AM
Obviously the biggest risk here is that this can significantly tarnish WFC's reputation, and discourage people/companies from doing business with them. They had a reputation of being on of the few big bands that didn't engage in shady business practices, so this could have somewhat long-term implications.


I haven't sold any of my WFC shares yet, as I'm still trying to see how this will play out.

This isn't a new issue though.  KC posted a 3 year old article on this topic.  All the customers that may have been pissed off by this already were pissed off, so shouldn't this already be in the deposit growth numbers?


The media coverage can influence people though.

That's true.  Maybe I'm biased but I have a hard time thinking many customers would see this news and be spooked into switching their accounts to another bank.  A minority of customers got fraudulently charged $25 and had that credited back to them later.  As a Wells Fargo customer I couldn't care less...  Any bank can (and probably does) do stuff like this.  I'm more concerned with which bank is least likely to blow up on me in the next financial crisis and which bank has better service. 
Title: Re: WFC - Wells Fargo
Post by: WneverLOSE on September 14, 2016, 11:53:04 AM
Two Warren Buffett quotes I think fit this case quite nicely.

"But to make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish. That is just plain foolish. Doesn’t make any difference what your IQ is. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense."

“’We can afford to lose money – even a lot of money.  But we can’t afford to lose reputation – even a shred of reputation.’ We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.”
Title: Re: WFC - Wells Fargo
Post by: PullTheTrigger on September 14, 2016, 01:15:07 PM
Paraphrase Buffett: “If you lose money for the firm I will be understanding. If you lose reputation I will be ruthless.”

We shall see.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 14, 2016, 03:33:28 PM


"But to make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish. That is just plain foolish. Doesn’t make any difference what your IQ is. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense."


This one!  What Wells did to their employees and customers was absolutely unneccesary.  I am pretty sophisticated financially, but I dont tend to shop around for the best bank deal.  In Canada it rather pointless.  I have dealt with First National for mortgages, and TD for most everything else for a long time, and CIBC for basic banking. I like to keep it simple.  Cross selling to me doesn't require any work or effort.  I needed a line of credit so I went to FN first (they dont do them) and then TD.  Job done.  I cant imagine that other people are that different.  And the ones who need to shop for the very best deal, shaving a quarter percent for a short time, aren't going to make good long term customers.


I will say that if a company irritates me once too often I never go back or avoid it like the plague (I avoid Canadian Tire as much as possible; and will never, ever shop at Sears again - their credit department screwed me after I bought all new appliances and some garbage furniture). 
Title: Re: WFC - Wells Fargo
Post by: Viking on September 14, 2016, 11:39:35 PM
I was pleasantly surprised by Cramer's interview of Wells CEO. Stumpf's answers, however, were pretty pathetic. He said they had to fire 1,000 employees each of the last 5 years. They have about 100,000 retail employees so it was 'only' a 1% problem. He also basically said the issue was the 1,000 people each year were crooks and therefore got their asses fired and Wells Fargo is not to blame in any way.

Now if you listen to a Wells Fargo quarterly results conference call one of the key data points they communicate is average number of banking products a customer has with the bank. Over time Wells has been able to grow the number of financial products used by its customers. This has been important in the bank getting a premium multiple compared to its peer group. Perhaps Wells pushed a little too hard.

My guess is this issue will blow over in the coming months. I bought a chunk of WFC yesterday and will be happy to buy more should it sell off more.
Title: Re: WFC - Wells Fargo
Post by: vox on September 15, 2016, 11:03:21 AM
http://www.wsj.com/articles/federal-prosecutors-investigating-wells-fargo-over-sales-tactics-1473881424

"Federal prosecutors are in the early stages of an investigation into sales practices at Wells Fargo & Co. that led to the bank being hit last week with a $185 million fine, according to people familiar with the matter.

The investigation is being conducted by the U.S. attorney’s offices for the Southern District of New York and the Northern District of California, these people said. Prosecutors have yet to decide if any case, should they decide to pursue one, would be along civil or criminal lines, the people said."

Preet Bharara is looking into it. I wouldn't say that it's over yet.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on September 15, 2016, 11:06:17 AM
http://www.wsj.com/articles/federal-prosecutors-investigating-wells-fargo-over-sales-tactics-1473881424

"Federal prosecutors are in the early stages of an investigation into sales practices at Wells Fargo & Co. that led to the bank being hit last week with a $185 million fine, according to people familiar with the matter.

The investigation is being conducted by the U.S. attorney’s offices for the Southern District of New York and the Northern District of California, these people said. Prosecutors have yet to decide if any case, should they decide to pursue one, would be along civil or criminal lines, the people said."

Preet Bharara is looking into it. I wouldn't say that it's over yet.


Waiting for the settlements in the $B ranges...
Title: Re: WFC - Wells Fargo
Post by: KinAlberta on September 15, 2016, 12:12:36 PM


"But to make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish. That is just plain foolish. Doesn’t make any difference what your IQ is. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense."


This one!  What Wells did to their employees and customers was absolutely unneccesary.  I am pretty sophisticated financially, but I dont tend to shop around for the best bank deal.  In Canada it rather pointless.  I have dealt with First National for mortgages, and TD for most everything else for a long time, and CIBC for basic banking. I like to keep it simple.  Cross selling to me doesn't require any work or effort.  I needed a line of credit so I went to FN first (they dont do them) and then TD.  Job done.  I cant imagine that other people are that different.  And the ones who need to shop for the very best deal, shaving a quarter percent for a short time, aren't going to make good long term customers.


I will say that if a company irritates me once too often I never go back or avoid it like the plague (I avoid Canadian Tire as much as possible; and will never, ever shop at Sears again - their credit department screwed me after I bought all new appliances and some garbage furniture).

Exactly. I know people that take the time and effort to find the very best GIC rates, credit card rates, etc. They have absolutely zero loyalty to a bank. It's probably a healthy position to take but it takes a lot of time and effort for a potentially small return. They aren't any bank's profit centres.


 My keep it simple logic says: invest in the best banks and insurance companies, but deal with a credit union.
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on September 15, 2016, 12:29:28 PM
What bothered me about John Stumpf's interview on CNBC was that he did not totally own up to the egregious fraud that occurred under his watch. He almost exclusively kept blaming low level employees. When asked about taking responsibility, he kept saying "we" almost all the time. Only when Cramer pushed him hard he said "I" once. Also he tried to minimize the fraud/identity theft by saying well it was only 1% of employees per year doing it. This thing went on for 5 years and senior management took no action until the LA times investigated and published about the fraud.

I think it may be a very good idea to split up the Chairman and CEO roles at all large banks.
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 15, 2016, 01:20:17 PM
What bothered me about John Stumpf's interview on CNBC was that he did not totally own up to the egregious fraud that occurred under his watch. He almost exclusively kept blaming low level employees. When asked about taking responsibility, he kept saying "we" almost all the time. Only when Cramer pushed him hard he said "I" once. Also he tried to minimize the fraud/identity theft by saying well it was only 1% of employees per year doing it. This thing went on for 5 years and senior management took no action until the LA times investigated and published about the fraud.

I think it may be a very good idea to split up the Chairman and CEO roles at all large banks.

He was trying to draw a distinction that these were isolated incidents and not systemic and reflective of the culture as a whole. He took accountability for his oversight but I agree that he could've struck a more conciliatory tone.
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on September 15, 2016, 02:24:24 PM
Quote
I agree that he could've struck a more conciliatory tone.

It is not just about striking the right tone. The same thing went on year after year and management either were completely unaware of the problem, and or they knew about it and chose not to address it. So there must be accountability on mid-level/senior management and problem managers should be fired. I find Stumpf acting as if he is in CYA mode.
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 15, 2016, 03:17:35 PM
Quote
I agree that he could've struck a more conciliatory tone.

It is not just about striking the right tone. The same thing went on year after year and management either were completely unaware of the problem, and or they knew about it and chose not to address it. So there must be accountability on mid-level/senior management and problem managers should be fired. I find Stumpf acting as if he is in CYA mode.

That's 99% of banking management.  These are "yes" men and women who will throw anyone under the bus but themselves.  I remember having a meeting with five of these types of management bankers at once, and I wanted to puke.  You listen to them talk and it's hard to imagine they believe any of the nonsense they spout of their mouths.  Yet I think they believe their spin.  It's hard to know because they don't seem to have a soul.

It's kind of like politics.  Anyone who can get up the ranks to become the President should definitely not be President.  Banking is very similar. 
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on September 15, 2016, 03:54:26 PM
Quote
That's 99% of banking management.  These are "yes" men and women who will throw anyone under the bus but themselves.  I remember having a meeting with five of these types of management bankers at once, and I wanted to puke.  You listen to them talk and it's hard to imagine they believe any of the nonsense they spout of their mouths.  Yet I think they believe their spin.  It's hard to know because they don't seem to have a soul.

It's kind of like politics.  Anyone who can get up the ranks to become the President should definitely not be President.  Banking is very similar.

+1
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on September 15, 2016, 03:58:01 PM
Elizabeth Warren in full form:
http://video.cnbc.com/gallery/?video=3000551400

Stumpf brought this upon himself. At a minimum he could have kept silent and not praise Carrie Tolstedt as she was checking out with $125M.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on September 15, 2016, 04:55:26 PM
Quote
That's 99% of banking management.  These are "yes" men and women who will throw anyone under the bus but themselves.  I remember having a meeting with five of these types of management bankers at once, and I wanted to puke.  You listen to them talk and it's hard to imagine they believe any of the nonsense they spout of their mouths.  Yet I think they believe their spin.  It's hard to know because they don't seem to have a soul.

It's kind of like politics.  Anyone who can get up the ranks to become the President should definitely not be President.  Banking is very similar.

+1
+2

It's funny;  I Thought the same thing, but could not express it as poignantly.
Title: Re: WFC - Wells Fargo
Post by: DonFanucci on September 15, 2016, 05:24:46 PM
Quote
That's 99% of banking management.  These are "yes" men and women who will throw anyone under the bus but themselves.  I remember having a meeting with five of these types of management bankers at once, and I wanted to puke.  You listen to them talk and it's hard to imagine they believe any of the nonsense they spout of their mouths.  Yet I think they believe their spin.  It's hard to know because they don't seem to have a soul.

It's kind of like politics.  Anyone who can get up the ranks to become the President should definitely not be President.  Banking is very similar.

+1

-1

I think that is a completely ridiculous characterization of an entire sector of people who do valuable work.
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 15, 2016, 05:56:20 PM
I'm not talking about a banker or manager in a branch, as they represent a large portion of the banking workforce.  Or all the people who work in the back office.  I'm talking about the 5% or so that are in upper/middle management.  It takes decades for them to move up into those ranks.  If it comes down to throwing someone else under the bus, they'll absolutely do it. 

I have some experience with this since I met my wife when we both worked at a fairly large bank.  She ended up walking out on a management position because one of the executives asked her to help throw another manager under the bus.  The FBI was investigating some money laundering issues and instead of the bank taking ownership of bad internal controls they spent a lot of time finding ways to ruin tellers lives.  Good luck getting another job with a felony on your record.  Somehow it almost never happens to upper management.

Wells said they fired 1% of their workers over the past several years for bad behavior.  What about all the people they fired for not hitting these stupidly aggressive sales goals?  Guys like Stumpf do various walk ins through branches all the time.  You don't think this kind of stuff was conveyed to him?  Everyone sells the same banking products, did he really think he just had the best salesman?  So he's either a liar or stupid in my books. 

The community banking level might be different, I wouldn't know.  But I can tell by listening to Stumpf that he's full of it.
Title: Re: WFC - Wells Fargo
Post by: RadMan24 on September 15, 2016, 07:43:52 PM
I have to be honest. This is getting blown out of proportion. The 2.4 million accounts opened earned fees totaling $2.1 million. This is not how senior management nor the bank makes money - by creating fake accounts that on average earned a $1.20. Moreover, only a portion of the fake accounts charged fees because they simply didn't want clients to know they had a new account.

This whole "scandal" was caused by dubious incentives mixed in with a do or die mentality. I doubt this is a wide spread problem across the whole institution.

Senior management and the CEO and board were not aware until it was too late (obviously)... but to think they are somehow going to lose their jobs over this is ludicrous, imo.
Title: Re: WFC - Wells Fargo
Post by: Eye4Valu on September 15, 2016, 07:51:38 PM
I have to be honest. This is getting blown out of proportion. The 2.4 million accounts opened earned fees totaling $2.1 million. This is not how senior management nor the bank makes money - by creating fake accounts that on average earned a $1.20. Moreover, only a portion of the fake accounts charged fees because they simply didn't want clients to know they had a new account.

This whole "scandal" was caused by dubious incentives mixed in with a do or die mentality. I doubt this is a wide spread problem across the whole institution.

Senior management and the CEO and board were not aware until it was too late (obviously)... but to think they are somehow going to lose their jobs over this is ludicrous, imo.

Oh really? Engaging in fraud is no big deal? Maybe we should give senior management a raise?
Title: Re: WFC - Wells Fargo
Post by: RadMan24 on September 15, 2016, 08:05:44 PM
I'm saying the wrong incentive program was in place and obviously a lack of internal controls.

Its up to the government now to prove senior management knew about the fraud and encouraged their employees to take excessive risks.
Absent that proof, this scandal will be dealt with in appropriate manner.

Banks are run by bankers, things will happen that make you sick, but that's the risk you take.
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 15, 2016, 09:17:27 PM
I'm saying the wrong incentive program was in place and obviously a lack of internal controls.

Its up to the government now to prove senior management knew about the fraud and encouraged their employees to take excessive risks.
Absent that proof, this scandal will be dealt with in appropriate manner.

Banks are run by bankers, things will happen that make you sick, but that's the risk you take.

The problem is that this scheme had a lot of common features across many employees.  Like transferring money back and forth on a monthly basis to make the account look active to avoid getting charged fees.  You're not going to get that much commonality on manipulative behavior like that unless "everyone else is doing it."  A few people might figure that out, but not thousands.

Also while WFC didn't profit off these accounts, I'm assuming it probably targeted a lot of the less educated or smaller accounts.  Which means we don't know how much other harm it caused.  Such as bouncing rent because funds are being transferred back and forth and aren't put back in  time for a check to clear.  Or an account going overdrawn and they get put into Chex systems, making it hard to open accounts elsewhere.  These aren't things you do to large accounts, it's mostly done to the smaller and less educated customers. 

It's sort of a head scratcher because I don't see this stuff was helping their earnings.  It seems more like something a consultant or executive thought up as a way to drive some metric.  Instead it probably created a tough atmosphere and terrible incentives.  Some branches were probably worse than others because the flow of traffic into various locations aren't always the same.  If you're stuck in a low traffic branch that might put extra pressure to take advantage of these weird Wells Fargo loopholes.  You'd just think Wells would figure that out after a year or two.  Or maybe it's just the toxic byproduct of the sales culture that helps bring in the better business.  Hard to say.
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 16, 2016, 05:47:19 AM
I'm not talking about a banker or manager in a branch, as they represent a large portion of the banking workforce.  Or all the people who work in the back office.  I'm talking about the 5% or so that are in upper/middle management.  It takes decades for them to move up into those ranks.  If it comes down to throwing someone else under the bus, they'll absolutely do it. 


What you say applies generally to all large organizations, not just banks.
Title: Re: WFC - Wells Fargo
Post by: muscleman on September 16, 2016, 06:57:57 AM
I have to be honest. This is getting blown out of proportion. The 2.4 million accounts opened earned fees totaling $2.1 million. This is not how senior management nor the bank makes money - by creating fake accounts that on average earned a $1.20. Moreover, only a portion of the fake accounts charged fees because they simply didn't want clients to know they had a new account.

This whole "scandal" was caused by dubious incentives mixed in with a do or die mentality. I doubt this is a wide spread problem across the whole institution.

Senior management and the CEO and board were not aware until it was too late (obviously)... but to think they are somehow going to lose their jobs over this is ludicrous, imo.

Will this scandal make WFC uninvestable like Soloman Brothers? What do you guys think?
Title: Re: WFC - Wells Fargo
Post by: Nnejad on September 16, 2016, 07:29:30 AM
Gossip news sites writing articles on reddit and twitter user comments, being shared on my once treasured value investing message board.. I'm in my 9th circle of hell.
Title: Re: WFC - Wells Fargo
Post by: rb on September 16, 2016, 08:50:59 AM
Wow, Wells stock is taking it in the teeth
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on September 16, 2016, 09:22:57 AM

https://www.bloomberg.com/gadfly/articles/2016-09-16/wells-fargo-needs-a-good-stumpf-speech-next-week-in-washington
Title: Re: WFC - Wells Fargo
Post by: Astrea on September 16, 2016, 09:30:13 AM
This story is nothing new. My understanding is that it all started when an internal audit run by WFC uncovered improper sales practices back in 2013. Then, it got leaked to the media (see LA times article http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html). Then, it attracted more scrutiny and the CFPB proceedings. During all this time, WFC fired the culprits, reimbursed clients to the tune of $2.6m ($23 on average over 115k accounts where charges were levied). The CFPB consent order asked WFC to put $5m aside for the restitutions and so that should give you a clue about the magnitude of this affair in terms of "harm done to the consumer". Of course, we've got federal prosecutors interested and we've got John Stumpf appearing before the Senate Banking Committee next week so WFC will still be in the news for a while. Then there's the reputation/trust issue but I don't see any lasting damage here for an institution like WFC. I think all banks are in the same boat so don't see anyone switching because of this etc.

For those looking for an entry point in WFC, this might be a nice one.
Title: Re: WFC - Wells Fargo
Post by: muscleman on September 16, 2016, 09:32:45 AM
The question is to figure out if this is a mosquito bite or there are more roaches behind. Any thoughts?
Title: Re: WFC - Wells Fargo
Post by: Astrea on September 16, 2016, 09:59:06 AM
The question is to figure out if this is a mosquito bite or there are more roaches behind. Any thoughts?

To me it is a mosquito bite but I don't know how material the outcomes of any federal prosecutions (should these proceed) could be. Any lawyers with a view?
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 16, 2016, 09:59:32 AM
The question is to figure out if this is a mosquito bite or there are more roaches behind. Any thoughts?

It's $2 million in revenue over 5 years for a company that earned $100 billion over that period of time.  How can that be anything other than a mosquito bite?

You do have to wonder though why management didn't just incentivize cross-selling by rewarding employees for "active" new products with some definition that can't be gamed like card spending or new deposits. 
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on September 16, 2016, 10:05:00 AM
I dunno.  Seems like I remember Norwest operating a fair amount of those loan production/consumer finance offices offering people subprime/consumer unsecured loans.  I remember they used to have a Wells Fargo branded ones down here in the south before they acquired Wachovia. 
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 16, 2016, 10:12:35 AM
Wells Fargo has known that some employees created unauthorized accounts for some time now and has repeatedly warned employees about  the repercussions of doing so. Because many employees' compensation were heavily commission-based, they were incentivized to sell - and in some cases, employees resorted to fraudulent tactics to do so.

I believe that Wells as an organization pushed for their employees to sell more products to existing customers but in doing so, some employees went too far. I think that these kinds of incentives will lead to bad conduct but I do not think that this is widespread by any means.

http://www.nytimes.com/2016/09/17/business/dealbook/wells-fargo-warned-workers-against-fake-accounts-but-they-needed-a-paycheck.html?_r=0
Title: Re: WFC - Wells Fargo
Post by: DonFanucci on September 16, 2016, 10:52:56 AM
The question is to figure out if this is a mosquito bite or there are more roaches behind. Any thoughts?

It's $2 million in revenue over 5 years for a company that earned $100 billion over that period of time.  How can that be anything other than a mosquito bite?

You do have to wonder though why management didn't just incentivize cross-selling by rewarding employees for "active" new products with some definition that can't be gamed like card spending or new deposits.

I've made this mistake several times now. It may be a small issue, but now there is blood in the water. The Elizabeth Warrens will jump on the wagon and play right off of the sentiment that Picasso posted. People think businessmen are evil greedy bastards, bankers being the purest form. Now they can use the opportunity to impose punishment that doesn't fit the crime. Remember that regulators have tremendous arbitrary power over these institutions.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 16, 2016, 11:34:21 AM
http://www.nytimes.com/2016/09/17/business/dealbook/wells-fargo-warned-workers-against-fake-accounts-but-they-needed-a-paycheck.html?_r=0

Quote
After the practice of creating phony accounts was first reported in The Los Angeles Times in late 2013, the bank stepped up its monitoring and ethics training, former employees said. For its part, the bank said it had caught the behavior and started firing workers before the article appeared.

In San Diego, Mr. Taha said he attended two days of ethics training where employees were shown the difference between valid and improper accounts.

But the problems persisted. Mr. Taha, 28, said he fielded complaints from customers about questionable accounts until shortly before he left the bank this summer. He said bank managers had grown weary of writing up reports on potentially improper sales.

“It was like jaywalking,” Mr. Taha said of the practice of creating fraudulent accounts. “It was hard to police.”
Title: Re: WFC - Wells Fargo
Post by: mbreject on September 16, 2016, 11:40:21 AM
I'm saying the wrong incentive program was in place and obviously a lack of internal controls.

Its up to the government now to prove senior management knew about the fraud and encouraged their employees to take excessive risks.
Absent that proof, this scandal will be dealt with in appropriate manner.

Banks are run by bankers, things will happen that make you sick, but that's the risk you take.

The problem is that this scheme had a lot of common features across many employees.  Like transferring money back and forth on a monthly basis to make the account look active to avoid getting charged fees.  You're not going to get that much commonality on manipulative behavior like that unless "everyone else is doing it."  A few people might figure that out, but not thousands.

Also while WFC didn't profit off these accounts, I'm assuming it probably targeted a lot of the less educated or smaller accounts.  Which means we don't know how much other harm it caused.  Such as bouncing rent because funds are being transferred back and forth and aren't put back in  time for a check to clear.  Or an account going overdrawn and they get put into Chex systems, making it hard to open accounts elsewhere.  These aren't things you do to large accounts, it's mostly done to the smaller and less educated customers. 

It's sort of a head scratcher because I don't see this stuff was helping their earnings.  It seems more like something a consultant or executive thought up as a way to drive some metric.  Instead it probably created a tough atmosphere and terrible incentives.  Some branches were probably worse than others because the flow of traffic into various locations aren't always the same.  If you're stuck in a low traffic branch that might put extra pressure to take advantage of these weird Wells Fargo loopholes.  You'd just think Wells would figure that out after a year or two.  Or maybe it's just the toxic byproduct of the sales culture that helps bring in the better business.  Hard to say.

It might not have helped their earnings substantially, but it gave Stumpf another data point to make it seem like they had high customer satisfaction. I'm not sure, but I think he even mentioned that a lot of their new accounts were from existing customers in his letter this year.
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 16, 2016, 11:50:43 AM
It might not have helped their earnings substantially, but it gave Stumpf another data point to make it seem like they had high customer satisfaction. I'm not sure, but I think he even mentioned that a lot of their new accounts were from existing customers in his letter this year.

It didn't effect deposit growth at all, which is the ultimate data point on customer satisfaction.  If customers were dissatisfied, they would be taking their deposits elsewhere.
Title: Re: WFC - Wells Fargo
Post by: A_Hamilton on September 16, 2016, 12:11:44 PM
I'm saying the wrong incentive program was in place and obviously a lack of internal controls.

Its up to the government now to prove senior management knew about the fraud and encouraged their employees to take excessive risks.
Absent that proof, this scandal will be dealt with in appropriate manner.

Banks are run by bankers, things will happen that make you sick, but that's the risk you take.

The problem is that this scheme had a lot of common features across many employees.  Like transferring money back and forth on a monthly basis to make the account look active to avoid getting charged fees.  You're not going to get that much commonality on manipulative behavior like that unless "everyone else is doing it."  A few people might figure that out, but not thousands.

Also while WFC didn't profit off these accounts, I'm assuming it probably targeted a lot of the less educated or smaller accounts.  Which means we don't know how much other harm it caused.  Such as bouncing rent because funds are being transferred back and forth and aren't put back in  time for a check to clear.  Or an account going overdrawn and they get put into Chex systems, making it hard to open accounts elsewhere.  These aren't things you do to large accounts, it's mostly done to the smaller and less educated customers. 

It's sort of a head scratcher because I don't see this stuff was helping their earnings.  It seems more like something a consultant or executive thought up as a way to drive some metric.  Instead it probably created a tough atmosphere and terrible incentives.  Some branches were probably worse than others because the flow of traffic into various locations aren't always the same.  If you're stuck in a low traffic branch that might put extra pressure to take advantage of these weird Wells Fargo loopholes.  You'd just think Wells would figure that out after a year or two.  Or maybe it's just the toxic byproduct of the sales culture that helps bring in the better business.  Hard to say.

It might not have helped their earnings substantially, but it gave Stumpf another data point to make it seem like they had high customer satisfaction. I'm not sure, but I think he even mentioned that a lot of their new accounts were from existing customers in his letter this year.

I think what you guys are missing is that it did in fact drive earnings. There were sales incentives to do cross selling of multiple products which drives revenue per client and stickiness of deposits. What you are missing is how many millions of legitimate transactions/cross sales were driven by this sales incentive culture. The fraudulent accounts obviously didn't drive income, but they were a bi-product of an incentive system that was structured to earn profits. The problem was that there were no controls in place to stop abuses.
Title: Re: WFC - Wells Fargo
Post by: muscleman on September 16, 2016, 12:12:30 PM
It might not have helped their earnings substantially, but it gave Stumpf another data point to make it seem like they had high customer satisfaction. I'm not sure, but I think he even mentioned that a lot of their new accounts were from existing customers in his letter this year.

It didn't effect deposit growth at all, which is the ultimate data point on customer satisfaction.  If customers were dissatisfied, they would be taking their deposits elsewhere.


Just an anecdote. I am applying for a mortgage and Wells' rate is really good, so I chose it. Almost right before closing, I was told that in order to get this kind of low rate, I have to open a checking account and pay the mortgage monthly from that account. I have no choice but to do so.

This is how the deposit moves there.
 >:(
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 16, 2016, 12:30:27 PM
It might not have helped their earnings substantially, but it gave Stumpf another data point to make it seem like they had high customer satisfaction. I'm not sure, but I think he even mentioned that a lot of their new accounts were from existing customers in his letter this year.

It didn't effect deposit growth at all, which is the ultimate data point on customer satisfaction.  If customers were dissatisfied, they would be taking their deposits elsewhere.


Just an anecdote. I am applying for a mortgage and Wells' rate is really good, so I chose it. Almost right before closing, I was told that in order to get this kind of low rate, I have to open a checking account and pay the mortgage monthly from that account. I have no choice but to do so.

This is how the deposit moves there.
 >:(

This isn't unique to WFC, JPM did the exact same thing to me. 
Title: Re: WFC - Wells Fargo
Post by: TheAiGuy on September 17, 2016, 06:57:19 AM
Obloquy asside, WFC is a pretty safe ±7%/year at $50 a share. There is probably a reasonable 10-15% to make on this over the next year or so, if that's your thing (it's not mine, btw).

Edit:
assumptions: incremental ROA ~1%, constant leverage ratio, asset growth ~3.5-4%, payout ratio 75%, leads to dividend growth of ~3.75% --> @$50, with constant p/e, E[Returns] ~= 6.8%, which is also 15year historical return.
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 17, 2016, 08:02:03 AM
Obloquy asside, WFC is a pretty safe ±7%/year at $50 a share. There is probably a reasonable 10-15% to make on this over the next year or so, if that's your thing (it's not mine, btw).

Edit:
assumptions: incremental ROA ~1%, constant leverage ratio, asset growth ~3.5-4%, payout ratio 75%, leads to dividend growth of ~3.75% --> @$50, with constant p/e, E[Returns] ~= 6.8%, which is also 15year historical return.

Not sure how you get to a 6.8% expected return at $50 (or why you're estimating returns at $50 when the stock is $45).  By my estimates they'll earn about $4.25/share this year.  So with no growth at all that should be an 8.5% annual return buying at $50/share.

You're using an incremental ROA of 1%, when 2014/2015 ROA's were 1.45%/1.31% and the incremental ROA is substantially higher than the firm wide ROA since the branch network and almost all the operating costs of the branches are fixed.  You're also assuming 3.5-4% asset growth when deposits have been growing 7%/year.

Your analysis also assumes interest rates never rise.
Title: Re: WFC - Wells Fargo
Post by: johnny on September 17, 2016, 10:55:23 AM
LOL, just for the added data point. I decided to check out my mother's relationship with Wells (she's super unsophisticated). They were table to talk her into creating new checking accounts for different travel destinations, explaining to her that by having separate accounts it limited her financial exposure if her account information became compromised (kind of true! good job, bankers).

Morality aside, it is really unbelievable that Wells didn't at the most basic level have something in place to recognize that turning a PMA customer with 1 checking account into a PMA customer with 3 checking accounts doesn't actually create much value for the company. Everybody involved in the design of this system deserves to be fired for basic incompetence.
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on September 17, 2016, 11:17:32 AM
A Wells Fargo guy at my local branch in southern cal also tried to sell me a travel checking account with the same BS when I went in to make a deposit. After a month or two, they will start charging monthly fees for the "travel" account. Naturally I declined the "travel" checking account. I think the reason WFC tries this bull s**t  is that some people will open a new checking "travel" account and put small amount of money in it. Since it is below the minimum required for no account fees, WFC gets to charge monthly fees on the new account of the customer who does not pay monthly fees on his "regular" checking account which may have bigger balances. It is very clear to me that the cross-selling reached its limit at Wells Fargo. Now they are pushing useless and unethical products to customers. You would think Stumpf & senior management would be more cautious than this behavior in the post-2008 financial crisis environment.

I do most of my personal banking with a credit union and am happier with them.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 17, 2016, 01:08:04 PM
LOL, just for the added data point. I decided to check out my mother's relationship with Wells (she's super unsophisticated). They were table to talk her into creating new checking accounts for different travel destinations, explaining to her that by having separate accounts it limited her financial exposure if her account information became compromised (kind of true! good job, bankers).

Morality aside, it is really unbelievable that Wells didn't at the most basic level have something in place to recognize that turning a PMA customer with 1 checking account into a PMA customer with 3 checking accounts doesn't actually create much value for the company. Everybody involved in the design of this system deserves to be fired for basic incompetence.

Funny story.  The incompetence of large bureaucracies in action.  No one at the top of any of these banks deserves those paycheques there getting.  Its like winning the lottery via politics. 
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 17, 2016, 01:10:35 PM
Obloquy asside, WFC is a pretty safe ±7%/year at $50 a share. There is probably a reasonable 10-15% to make on this over the next year or so, if that's your thing (it's not mine, btw).

Edit:
assumptions: incremental ROA ~1%, constant leverage ratio, asset growth ~3.5-4%, payout ratio 75%, leads to dividend growth of ~3.75% --> @$50, with constant p/e, E[Returns] ~= 6.8%, which is also 15year historical return.

You all may get it cheaper in the near future.  Its not cheap enough for me, yet. 

Not sure how you get to a 6.8% expected return at $50 (or why you're estimating returns at $50 when the stock is $45).  By my estimates they'll earn about $4.25/share this year.  So with no growth at all that should be an 8.5% annual return buying at $50/share.

You're using an incremental ROA of 1%, when 2014/2015 ROA's were 1.45%/1.31% and the incremental ROA is substantially higher than the firm wide ROA since the branch network and almost all the operating costs of the branches are fixed.  You're also assuming 3.5-4% asset growth when deposits have been growing 7%/year.

Your analysis also assumes interest rates never rise.
Title: Re: WFC - Wells Fargo
Post by: TheAiGuy on September 17, 2016, 01:20:05 PM
Obloquy asside, WFC is a pretty safe ±7%/year at $50 a share. There is probably a reasonable 10-15% to make on this over the next year or so, if that's your thing (it's not mine, btw).

Edit:
assumptions: incremental ROA ~1%, constant leverage ratio, asset growth ~3.5-4%, payout ratio 75%, leads to dividend growth of ~3.75% --> @$50, with constant p/e, E[Returns] ~= 6.8%, which is also 15year historical return.

Not sure how you get to a 6.8% expected return at $50 (or why you're estimating returns at $50 when the stock is $45).  By my estimates they'll earn about $4.25/share this year.  So with no growth at all that should be an 8.5% annual return buying at $50/share.

You're using an incremental ROA of 1%, when 2014/2015 ROA's were 1.45%/1.31% and the incremental ROA is substantially higher than the firm wide ROA since the branch network and almost all the operating costs of the branches are fixed.  You're also assuming 3.5-4% asset growth when deposits have been growing 7%/year.

Your analysis also assumes interest rates never rise.

Yeah, it's meant to be a conservative estimate of value.  I'm fine if it's overly conservative. I think I would argue that this is a very stable business and that for such a business, the ~7% return I get with conservative assumptions should be very appealing to large institutional investors, and hence I would expect the stock to go back to where it was before this news came out. Which kinda feels like an arbitrage to me of around 10-15%.

(I would push back on of what you are saying is that an 8.5% earnings yield with no growth would translate into an 8.5% return -- I would assume that it would be worse, as I would expect the bank from being prevented on paying out 100% of its earnings through dividends or repurchases for regulatory concerns, and hence, without growth (i.e. a non-zero ROIC on retained capital), the returns are necessarily worse. But, I largely agree and I think less conservative but still quite reasonable assumptions get to expect something better. Personally, I would expect low double digits returns until the earnings multiple goes to the 12-13x range, followed by high single digits returns beyond that).

Title: Re: WFC - Wells Fargo
Post by: TheAiGuy on September 17, 2016, 01:21:40 PM
Obloquy asside (...)

aside*
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 17, 2016, 01:49:54 PM
(I would push back on of what you are saying is that an 8.5% earnings yield with no growth would translate into an 8.5% return -- I would assume that it would be worse, as I would expect the bank from being prevented on paying out 100% of its earnings through dividends or repurchases for regulatory concerns, and hence, without growth (i.e. a non-zero ROIC on retained capital), the returns are necessarily worse.

I don't think that's correct.  "No growth" assumes no growth in assets.  If you assume growing assets but constant net income, then yes, the 8.5% return would be overstating actual returns.  But as long as there is no growth in assets and no growth in net income, regulators would have no reason to prevent 100% of earnings from being distributed, otherwise Wells Fargo would have an ever increasing Tier 1 Equity Ratio when it is already capitalized well above the minimums.
Title: Re: WFC - Wells Fargo
Post by: shalab on September 17, 2016, 02:12:40 PM
FWIW, I opened an account today with WFC - it was a busy day and there were others opening accounts as well. I asked the banker about the scandal - he said they are trained not to do certain things and the press has blown it way out of proportion. He said he was using his savings to buy WFC stock as it is a good value now. He expects the stock to be back up in two-three quarters.


Obloquy asside, WFC is a pretty safe ±7%/year at $50 a share. There is probably a reasonable 10-15% to make on this over the next year or so, if that's your thing (it's not mine, btw).

Edit:
assumptions: incremental ROA ~1%, constant leverage ratio, asset growth ~3.5-4%, payout ratio 75%, leads to dividend growth of ~3.75% --> @$50, with constant p/e, E[Returns] ~= 6.8%, which is also 15year historical return.

Not sure how you get to a 6.8% expected return at $50 (or why you're estimating returns at $50 when the stock is $45).  By my estimates they'll earn about $4.25/share this year.  So with no growth at all that should be an 8.5% annual return buying at $50/share.

You're using an incremental ROA of 1%, when 2014/2015 ROA's were 1.45%/1.31% and the incremental ROA is substantially higher than the firm wide ROA since the branch network and almost all the operating costs of the branches are fixed.  You're also assuming 3.5-4% asset growth when deposits have been growing 7%/year.

Your analysis also assumes interest rates never rise.

Yeah, it's meant to be a conservative estimate of value.  I'm fine if it's overly conservative. I think I would argue that this is a very stable business and that for such a business, the ~7% return I get with conservative assumptions should be very appealing to large institutional investors, and hence I would expect the stock to go back to where it was before this news came out. Which kinda feels like an arbitrage to me of around 10-15%.

(I would push back on of what you are saying is that an 8.5% earnings yield with no growth would translate into an 8.5% return -- I would assume that it would be worse, as I would expect the bank from being prevented on paying out 100% of its earnings through dividends or repurchases for regulatory concerns, and hence, without growth (i.e. a non-zero ROIC on retained capital), the returns are necessarily worse. But, I largely agree and I think less conservative but still quite reasonable assumptions get to expect something better. Personally, I would expect low double digits returns until the earnings multiple goes to the 12-13x range, followed by high single digits returns beyond that).
Title: Re: WFC - Wells Fargo
Post by: Palantir on September 17, 2016, 02:56:14 PM
Wells Fargo's pressure-cooker sales culture comes at a cost
http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html
Quote
One former branch manager who worked in the Pacific Northwest described her dismay at discovering that employees had talked a homeless woman into opening six checking and savings accounts with fees totaling $39 a month.


Stay classy
Title: Re: WFC - Wells Fargo
Post by: TheAiGuy on September 18, 2016, 08:23:05 AM
(I would push back on of what you are saying is that an 8.5% earnings yield with no growth would translate into an 8.5% return -- I would assume that it would be worse, as I would expect the bank from being prevented on paying out 100% of its earnings through dividends or repurchases for regulatory concerns, and hence, without growth (i.e. a non-zero ROIC on retained capital), the returns are necessarily worse.

I don't think that's correct.  "No growth" assumes no growth in assets.  If you assume growing assets but constant net income, then yes, the 8.5% return would be overstating actual returns.  But as long as there is no growth in assets and no growth in net income, regulators would have no reason to prevent 100% of earnings from being distributed, otherwise Wells Fargo would have an ever increasing Tier 1 Equity Ratio when it is already capitalized well above the minimums.

Yeah, I think you are  right. I guess that implies, though, that the payout ratio  for any of the  SIFI's is necessairly going to be a function of their asset growth going forward. which makes sense but I hadn't considered that before.
Title: Re: WFC - Wells Fargo
Post by: muscleman on September 18, 2016, 09:12:05 AM
Wells Fargo's pressure-cooker sales culture comes at a cost
http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html
Quote
One former branch manager who worked in the Pacific Northwest described her dismay at discovering that employees had talked a homeless woman into opening six checking and savings accounts with fees totaling $39 a month.


Stay classy


What a similarity between Wells Fargo and Amazon!
http://www.latimes.com/opinion/topoftheticket/la-na-tt-amazon-brutal-workplace-20150818-story.html

I was working in Amazon in that period and Jeff Bezos wrote a letter to all employees claiming that the reporter described a company that he is not familiar with. We were all like, "oh, come on, you liar!"

But you know what........ The stock price kept going up. Amazon is doing better each year, sucking more blood from employees and suppliers.







Title: Re: WFC - Wells Fargo
Post by: cmlber on September 18, 2016, 10:01:49 AM
(I would push back on of what you are saying is that an 8.5% earnings yield with no growth would translate into an 8.5% return -- I would assume that it would be worse, as I would expect the bank from being prevented on paying out 100% of its earnings through dividends or repurchases for regulatory concerns, and hence, without growth (i.e. a non-zero ROIC on retained capital), the returns are necessarily worse.

I don't think that's correct.  "No growth" assumes no growth in assets.  If you assume growing assets but constant net income, then yes, the 8.5% return would be overstating actual returns.  But as long as there is no growth in assets and no growth in net income, regulators would have no reason to prevent 100% of earnings from being distributed, otherwise Wells Fargo would have an ever increasing Tier 1 Equity Ratio when it is already capitalized well above the minimums.

Yeah, I think you are  right. I guess that implies, though, that the payout ratio  for any of the  SIFI's is necessairly going to be a function of their asset growth going forward. which makes sense but I hadn't considered that before.

Yes, that's right.  It's not a coincidence that WFCs target payout ratio is 65%. 

$1.25 trillion in deposits growing 6-7%/year is $75-85 billion/year in new deposits.  To maintain 10% equity ratio they need to retain $7.5-8.5 billion of earnings per year.  They earn $21-22 billion/year.  8/22 = 36% retention ratio, or 64% payout ratio.

If growth slowed the payout ratio should go up.  But we should hope growth accelerates and the payout ratio goes down.  Each dollar retained is earning an incremental 20% on capital.  $100 of deposits earns $2.95/year at the current NIM over $10 of retained equity is almost 30% pre tax returns on incremental capital.
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on September 19, 2016, 09:46:26 AM
The warrants look interesting at these prices. Book value should be in the neighborhood of $41 at the time of expiration (assuming flat earnings over the next 2 years).
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on September 19, 2016, 10:28:17 AM
Chief Risk Officer for retail bank takes "leave":

http://www.bloomberg.com/news/articles/2016-09-19/wells-fargo-s-chief-risk-officer-for-retail-bank-takes-leave
Title: Re: WFC - Wells Fargo
Post by: ValueMaven on September 19, 2016, 11:58:55 AM
I bought some WFC common Thursday and Friday of last week. 

Sincerely,
ValueMaven - NYC
Title: Re: WFC - Wells Fargo
Post by: stahleyp on September 19, 2016, 07:31:59 PM
I really hope Buffett talks about this. If not, do much for the whole "lose s shred of integrity and I'll be ruthless" talk.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on September 19, 2016, 07:39:52 PM
I really hope Buffett talks about this. If not, do much for the whole "lose s shred of integrity and I'll be ruthless" talk.

WFC lost of whole lot of credibility for a shred of money.
Title: Re: WFC - Wells Fargo
Post by: DTEJD1997 on September 19, 2016, 08:10:11 PM
Hey all:

Anybody buying into WFC at this point in time is probably making a HUGE mistake.

I am going to predict that there is going to be fallout, a LOT of fallout from this latest round of scams.

A). The bank's credibility is damaged, perhaps severely.

B). They are going to have pay a big government fine.

C). I suspect they will be vulnerable to suits from people who got ripped off.

They are going to have pay out a lot on this...
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 19, 2016, 08:25:53 PM
I really hope Buffett talks about this. If not, do much for the whole "lose s shred of integrity and I'll be ruthless" talk.

I would be very surprised if Buffett said anything about this for a while.  I'm sure his preference is for this news to keep the stock price down so WFC buys back more stock.  No reason to come out and say this isn't a big deal.

There is a HUGE difference between this and the "lose a shred of integrity" situation.  Here's a summary of what was going on in the Salomon case:

"At the center of this experience was a single day—what he has called “the most important day of my life,” Sunday, Aug. 18, 1991—in which the U.S. Treasury first banned Salomon from bidding in government securities auctions and then, because of Buffett‘s efforts, rescinded the ban. In the four hours of suspense between the two actions, Buffett struggled passionately to ward off a tragedy he saw threatening to unfold. In Buffett‘s opinion, the ban put Salomon, this company now being priced at $9 billion, in sure danger of having immediately to file for bankruptcy."

In this case they charged people $2 million that they shouldn't have.  Their revenue over that period was about 200,000x greater than the fraud.  Quite different from a concern of "having immediately to file for bankruptcy." 

When you employ 265,000 people, sometimes some of them do dumb things.  If you look at any company this large I would bet you can find instances where consumers as a whole suffered $2 million or more in damages because of the acts of a few dumb employees.
Title: Re: WFC - Wells Fargo
Post by: Green King on September 19, 2016, 09:21:23 PM
I really hope Buffett talks about this. If not, do much for the whole "lose s shred of integrity and I'll be ruthless" talk.

I would be very surprised if Buffett said anything about this for a while.  I'm sure his preference is for this news to keep the stock price down so WFC buys back more stock.  No reason to come out and say this isn't a big deal.

There is a HUGE difference between this and the "lose a shred of integrity" situation.  Here's a summary of what was going on in the Salomon case:

"At the center of this experience was a single day—what he has called “the most important day of my life,” Sunday, Aug. 18, 1991—in which the U.S. Treasury first banned Salomon from bidding in government securities auctions and then, because of Buffett‘s efforts, rescinded the ban. In the four hours of suspense between the two actions, Buffett struggled passionately to ward off a tragedy he saw threatening to unfold. In Buffett‘s opinion, the ban put Salomon, this company now being priced at $9 billion, in sure danger of having immediately to file for bankruptcy."

In this case they charged people $2 million that they shouldn't have.  Their revenue over that period was about 200,000x greater than the fraud.  Quite different from a concern of "having immediately to file for bankruptcy." 

When you employ 265,000 people, sometimes some of them do dumb things.  If you look at any company this large I would bet you can find instances where consumers as a whole suffered $2 million or more in damages because of the acts of a few dumb employees.
+1
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 19, 2016, 09:41:34 PM
If I remember reading the event correctly, Buffett needed to make an executive sacrifice in order to get the Salomon bailout.  The whole thing was tarnishing what Buffett had built up at Berkshire (not really from a P/L standpoint but more from a credibility aspect) so he made that famous comment.  If you consider how he fired Sokol, I think he means it.  Initially he was like "Sokol is a cool guy, no big deal."  Then when the media backlash got pretty nasty he had to fire him. 

Here was Sokol's comment:

"I will never understand why Mr. Buffett chose to hurt my family in such a way, but given that he is rapidly approaching his judgement [sic] day I will leave his verdict to a higher power," Mr. Sokol wrote in an emailed response to The Wall Street Journal."

So I mean anything is possible here.  Stumpf did make fun of Buffett's eating habits.

“Warren eats a full meal, let me tell you,” said Stumpf, 61. “When the food comes, Warren grabs a salt shaker in his left hand and one in his right hand, and it’s a snowstorm. And I know a snowstorm when I see one because I’m from Minnesota.”

In all seriousness, Stumpf couldn't even make a decent argument to Jim Cramer.  The Congressional hearing is going to be 10x as bad.  We'll see what happens but I think Buffett's hands are tied on this.  Stumpf probably gets the boot.
Title: Re: WFC - Wells Fargo
Post by: whiterose on September 20, 2016, 02:29:00 AM
Quote
John Stumpf’s Prepared Testimony to Senate
In prepared testimony to be delivered before a Senate Committee on Tuesday, John Stumpf, chief executive of Wells Fargo, strikes a decidedly contrite tone on the scandal over fake accounts created by employees at the bank.

http://www.nytimes.com/interactive/2016/09/19/business/dealbook/document-wells-fargo-stumpf-prepared-testimony.html?_r=0
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on September 20, 2016, 03:23:36 AM
LOL, just for the added data point. I decided to check out my mother's relationship with Wells (she's super unsophisticated). They were table to talk her into creating new checking accounts for different travel destinations, explaining to her that by having separate accounts it limited her financial exposure if her account information became compromised (kind of true! good job, bankers).
I have bought a small position, but the above is why I am hesitant to buy more. If you have a few thousand rogue employees fiddling customer accounts (something that is very easy to find), I think it's very possible that employees were also engaged in other nefarious (and more difficult to track) activities. In a high-pressure environment, who knows what sort of garbage sales people were trying to sell to unsophisticated customers. Here in the UK, our banks were involved in a scandal where they sold payment protection insurance on their financial products that was either useless, too expensive, and hidden in the terms and conditions. The government took a hardline on the banks, and to this day the bill for mis-selling products is increasing. Relatively to the size of the banks involved, the fines involved have been huge (the British banks involved have market caps of £20-40bn, the fines for each bank were in the £4-8bn range).

https://www.theguardian.com/business/2011/may/05/how-ppi-scandal-unfolded

Perhaps this is the extent of Wells' misdeeds. If it is, and the stock price bounces back then I am ok with the missed opportunity. However, if it turns out that there is more than one cockroach, there is a major sell-off, and maybe we will get a chance to buy at below $40. It'll be interesting to see how Uncle Warren respond to this.
Title: Re: WFC - Wells Fargo
Post by: tede02 on September 20, 2016, 07:06:12 AM
I would venture to guess that this entire scandal is of no surprise to Munger in particular.  He has been talking about the power of incentives for decades.  If you pay people to open new accounts, SURPRISE!, you get more accounts. 
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 20, 2016, 07:17:32 AM
Perhaps this is the extent of Wells' misdeeds. If it is, and the stock price bounces back then I am ok with the missed opportunity. However, if it turns out that there is more than one cockroach, there is a major sell-off, and maybe we will get a chance to buy at below $40. It'll be interesting to see how Uncle Warren respond to this.

Isn't this risk already priced into the stock? Banks are risky and regulated. That's why WFC trades at half the multiple of Kellog.
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on September 20, 2016, 07:46:54 AM
Perhaps this is the extent of Wells' misdeeds. If it is, and the stock price bounces back then I am ok with the missed opportunity. However, if it turns out that there is more than one cockroach, there is a major sell-off, and maybe we will get a chance to buy at below $40. It'll be interesting to see how Uncle Warren respond to this.

Isn't this risk already priced into the stock? Banks are risky and regulated. That's why WFC trades at half the multiple of Kellog.
Kind of. You compare WFC to peers and the stock price is probably off about 5-8% of what it should be. As a percentage of market cap, that number is significant, so perhaps I am being greedy to hope for a further decline.
Title: Re: WFC - Wells Fargo
Post by: KinAlberta on September 20, 2016, 08:41:51 AM
I would venture to guess that this entire scandal is of no surprise to Munger in particular.  He has been talking about the power of incentives for decades.  If you pay people to open new accounts, SURPRISE!, you get more accounts.

Edwards Deming didn't have much good to say about bonuses either.

As for this scandal it's interesting that Munger (or was it Buffett) was 'throwing stones' at Valeant while under their nose hugely unethical activities were taking place in their own holdings.

Title: Re: WFC - Wells Fargo
Post by: mbreject on September 20, 2016, 09:53:10 AM
I would venture to guess that this entire scandal is of no surprise to Munger in particular.  He has been talking about the power of incentives for decades.  If you pay people to open new accounts, SURPRISE!, you get more accounts.

Edwards Deming didn't have much good to say about bonuses either.

As for this scandal it's interesting that Munger (or was it Buffett) was 'throwing stones' at Valeant while under their nose hugely unethical activities were taking place in their own holdings.

http://www.insurance.ca.gov/0400-news/0100-press-releases/2016/release066-16.cfm
Title: Re: WFC - Wells Fargo
Post by: arcube on September 20, 2016, 09:58:45 AM
Sen Warren is ripping a new a**hole in Stumpf but I hate this charade called Senate hearing. Stumpf following what his PR and K Street advisors have told him but he looks so clueless like on the CNBC interview.
Title: Re: WFC - Wells Fargo
Post by: rb on September 20, 2016, 10:04:33 AM
When was a Senate hearing not charade?
Title: Re: WFC - Wells Fargo
Post by: arcube on September 20, 2016, 10:24:08 AM
When was a Senate hearing not charade?

Only when they made big auto CEOs ditch company planes and instead drive to hearings with tin cups in hands;) .
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 20, 2016, 10:28:18 AM
Sen Warren is ripping a new a**hole in Stumpf but I hate this charade called Senate hearing. Stumpf following what his PR and K Street advisors have told him but he looks so clueless like on the CNBC interview.

Not sure if he knew this was going to be a colonoscopy.  Someone should have mentioned he can't eat for 24 hours and there's a special beverage one needs to take.
Title: Re: WFC - Wells Fargo
Post by: arcube on September 20, 2016, 11:21:43 AM
Sen Warren is ripping a new a**hole in Stumpf but I hate this charade called Senate hearing. Stumpf following what his PR and K Street advisors have told him but he looks so clueless like on the CNBC interview.

Not sure if he knew this was going to be a colonoscopy.  Someone should have mentioned he can't eat for 24 hours and there's a special beverage one needs to take.

Indeed. You always crack me up.
https://www.youtube.com/watch?v=8w1PT5Bqw54
Title: Re: WFC - Wells Fargo
Post by: Viking on September 20, 2016, 01:46:13 PM
And the stock is up the last two days... A bit of a head scratcher to me given all the negative press. Also a little surprising to have no comment from Buffett. Perhaps he is waiting to make sure all the bad news is out first. I wonder if the plan is to have Stumpf take the heat for as long as possible and then resign to make legislators happy.
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 20, 2016, 04:01:36 PM
And the stock is up the last two days... A bit of a head scratcher to me given all the negative press. Also a little surprising to have no comment from Buffett. Perhaps he is waiting to make sure all the bad news is out first. I wonder if the plan is to have Stumpf take the heat for as long as possible and then resign to make legislators happy.


Yes, Stumpf will get shlonged for a few days, there'll be some trivial penalty for WFC to pay, a few silly class action suits that won't go anywhere and then life will go on...


SJ
Title: Re: WFC - Wells Fargo
Post by: bookie71 on September 21, 2016, 09:38:13 AM
Does Wells Fargo have provisions for arbitration?  If so there probably won't be any class action law suits. (a shame, in my opinion)
Title: Re: WFC - Wells Fargo
Post by: rb on September 21, 2016, 09:45:05 AM
It does. All customer disputes will be solved through binding arbitration.
Title: Re: WFC - Wells Fargo
Post by: adesigar on September 21, 2016, 09:45:20 AM
There is never just one Cockroach

http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/index.html
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 21, 2016, 09:46:43 AM
If so there probably won't be any class action law suits. (a shame, in my opinion)

If you think that's a shame, you don't understand class action lawsuits.
Title: Re: WFC - Wells Fargo
Post by: rb on September 21, 2016, 09:53:46 AM
There is never just one Cockroach

http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/index.html
Yea, I think Stumpf may be done.
Title: Re: WFC - Wells Fargo
Post by: Buffetteer on September 21, 2016, 10:01:39 AM
I am not thoroughly familiar with SEC Form 13D, but here is an explanation I found online. It deals with disclosure requirements of major shareholders:

Amendments to Schedule 13Ds must be filed “promptly” after a material change occurs to the facts submitted in the previously filed schedule. While the determination of what constitutes a “material” change is based on the facts and circumstances of the transaction, the SEC deems acquisitions or dispositions of beneficial ownership equal to 1 percent or more of the class of securities as “material.” In addition, while “promptly” has not been defined by the SEC and depends upon the facts and circumstances of the acquisition or disposition, in the case of a change of beneficial ownership equal to 1 percent or more of the class of securities the SEC has taken the position that “promptly” means “within 1 business day.” For all other instances, “promptly” is generally interpreted by practitioners as “within 10 days.”

Am I to understand that if Berkshire reduces its position in Wells Fargo by 1% or more we will know about it the next day, or at very least within 10 days?

Would be greatly appreciated if other members with a better understanding of SEC rules are able to clarify this.
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 21, 2016, 10:14:42 AM
Does Wells Fargo have provisions for arbitration?  If so there probably won't be any class action law suits. (a shame, in my opinion)


It wouldn't likely matter much anyway.  The aggregate "losses" that WFC's shenanigans imposed on clients were pretty minimal.  Even if a class could be certified, and if the complainants won, what would the settlement be?  Perhaps a $20 deposit into each complainant's account?  And that settlement would likely not occur until 2022 or something like that.  That would hardly move the needle for BV.  And the trivial fine that they'll end up paying will hardly move the needle either.

The biggest risk is damage to the WFC reputation/brand.  But IMO, even that is likely to be minimal.  Changing banks is a royal pain in the ass, so an established client needs to be pretty pissed off before he moves his accounts.  And the level of consumer awareness among the Joe Six-pack crowd is so low that probably nobody will even remember this by Easter.

Life will go on for WFC.  At some point, I might add to my position.

SJ
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on September 21, 2016, 11:18:25 AM
I am amazed by this fiasco.  I think in many ways it's shown people's true colors.  There are those in the company's management who are willing to do anything to make money.  These things might not have added much to WFC's bottom line, but they bumped up the stock, and with bonuses based on the stock it seems execs did well.  It's shown investor colors as well.  I'm aghast at this.  If I were to take someone's social security number and address and open a credit card in their name I could end up in jail.  But at Wells Fargo it was just a "misaligned incentive" and most are chalking it up as "whoops, no harm done."

If someone walks into a bank and points a gun at a teller and walks away with $25 they have the same punishment as if they walked away with $10,000.  The crime isn't the amount of money taken, it's the action taken.

What galls me about this is it seems management has been pretty effective over the last 8-10 years in morally cleansing the company.  People were fired if they failed to engage in this and meet sales targets.  People who thought this was shady and called the ethics hotline were fired etc.  Natural selection would dictate that right now the place is fairly gutless.  Maybe that's why we saw Stumpf do what he did.

The biggest risk for WFC is regulatory risk.  It's that their ability to conduct business is so hamstrung that they become profitless.  You never know what a regulator will do, but my guess is they get their pound of flesh. 
Title: Re: WFC - Wells Fargo
Post by: KinAlberta on September 21, 2016, 11:27:38 AM
I am amazed by this fiasco.  I think in many ways it's shown people's true colors.  There are those in the company's management who are willing to do anything to make money.  These things might not have added much to WFC's bottom line, but they bumped up the stock, and with bonuses based on the stock it seems execs did well.  It's shown investor colors as well.  I'm aghast at this.  If I were to take someone's social security number and address and open a credit card in their name I could end up in jail.  But at Wells Fargo it was just a "misaligned incentive" and most are chalking it up as "whoops, no harm done."

If someone walks into a bank and points a gun at a teller and walks away with $25 they have the same punishment as if they walked away with $10,000.  The crime isn't the amount of money taken, it's the action taken.

What galls me about this is it seems management has been pretty effective over the last 8-10 years in morally cleansing the company.  People were fired if they failed to engage in this and meet sales targets.  People who thought this was shady and called the ethics hotline were fired etc.  Natural selection would dictate that right now the place is fairly gutless.  Maybe that's why we saw Stumpf do what he did.

The biggest risk for WFC is regulatory risk.  It's that their ability to conduct business is so hamstrung that they become profitless.  You never know what a regulator will do, but my guess is they get their pound of flesh.

Great post. Right on.  I think its just another temporary blast to a bank's reputation that some PR and marketing money will quickly obfuscate within a year or two. It may never die on the internet but will billions upon billions of new bits of business scandal news hitting the web every day, the worst repetitional hits dilute to nothing within a short time.

We can even expect headlines about how it was actually Buffett taking widows and orphan's social insurance numbers and issuing them costly and unwanted credit cards...


Warren Buffett to Fox Business: I'll Remain Silent on Wells Fargo for Now
By Liz Claman  Published September 21, 2016

http://www.foxbusiness.com/markets/2016/09/21/warren-buffett-to-fox-business-ill-remain-silent-on-wells-fargo-for-now.html
Title: Re: WFC - Wells Fargo
Post by: KinAlberta on September 21, 2016, 11:41:30 AM
I haven't been following this issue closely, so please forgive my ignorance, but wouldn't this also be a problem at a number of the other US banks as well? Don't they all aggressively incentivize their staff to cross-sell everything under the sun. Moreover, since lending risk and rates could be crimping their former style, couldn't this have been a near industry standard practise?  In otherwords, is this the tip of the iceberg and soon disgruntled former staff everywhere will be coming out of the woodwork...

Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 21, 2016, 11:54:55 AM
Yea, I think Stumpf may be done.

Maybe but I imagine the board will consider his track record
(https://im.morningstar.com/content/CMSImages/3815.png)

Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 21, 2016, 11:59:53 AM
I am amazed by this fiasco.  I think in many ways it's shown people's true colors.  There are those in the company's management who are willing to do anything to make money.  These things might not have added much to WFC's bottom line, but they bumped up the stock, and with bonuses based on the stock it seems execs did well.  It's shown investor colors as well.  I'm aghast at this.  If I were to take someone's social security number and address and open a credit card in their name I could end up in jail.  But at Wells Fargo it was just a "misaligned incentive" and most are chalking it up as "whoops, no harm done."

If someone walks into a bank and points a gun at a teller and walks away with $25 they have the same punishment as if they walked away with $10,000.  The crime isn't the amount of money taken, it's the action taken.

What galls me about this is it seems management has been pretty effective over the last 8-10 years in morally cleansing the company.  People were fired if they failed to engage in this and meet sales targets.  People who thought this was shady and called the ethics hotline were fired etc.  Natural selection would dictate that right now the place is fairly gutless.  Maybe that's why we saw Stumpf do what he did.

The biggest risk for WFC is regulatory risk.  It's that their ability to conduct business is so hamstrung that they become profitless.  You never know what a regulator will do, but my guess is they get their pound of flesh.


I don't think that I've read too many opinions that WFC's conduct was acceptable; rather, there is a consensus that the behaviour was ridiculous.  But, as an investor, that's where it stops.  I am confident that future management will put in place controls to ensure that this type of thing will not happen in the future. 

As an investor, the challenge is to figure out whether the market has overreacted to this event and administered an excessive haircut to WFC's market cap.  It's the same challenge that investors had when Volkswagen announced its emissions issue and when British Petroleum was managing its major oil spill in the Gulf of Mexico.  What is the true economic damage to the company through fines, lawsuits, reputational damage, and enhanced regulatory oversight?  For BP, the market tended to overestimate the economic damage.  For Volkswagen, I don't really know.  But my sense is that for WFC, this whole thing will likely cost the company less than $1B pre-tax...so that might be perhaps $0.15/share after tax.  The haircut to WFC's market cap appears to far exceed my perception of the actual costs that they'll end up incurring.  At a certain point, the declining share price makes for a compelling investment opportunity if one can ignore all of the noise surrounding this issue.

Again, the behaviour is ridiculous...perhaps just as ridiculous as issuing NINJA-loans, securitizing turds and selling them to third parties, robo-signing, and just plain falsifying information on mortgage applications.  Fraudulent behaviour is fraudulent behaviour.  But this time, there's much less potential for loan losses, large fines and litigation.


SJ
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on September 21, 2016, 12:12:45 PM
I am amazed by this fiasco.  I think in many ways it's shown people's true colors.  There are those in the company's management who are willing to do anything to make money.  These things might not have added much to WFC's bottom line, but they bumped up the stock, and with bonuses based on the stock it seems execs did well.  It's shown investor colors as well.  I'm aghast at this.  If I were to take someone's social security number and address and open a credit card in their name I could end up in jail.  But at Wells Fargo it was just a "misaligned incentive" and most are chalking it up as "whoops, no harm done."

If someone walks into a bank and points a gun at a teller and walks away with $25 they have the same punishment as if they walked away with $10,000.  The crime isn't the amount of money taken, it's the action taken.

What galls me about this is it seems management has been pretty effective over the last 8-10 years in morally cleansing the company.  People were fired if they failed to engage in this and meet sales targets.  People who thought this was shady and called the ethics hotline were fired etc.  Natural selection would dictate that right now the place is fairly gutless.  Maybe that's why we saw Stumpf do what he did.

The biggest risk for WFC is regulatory risk.  It's that their ability to conduct business is so hamstrung that they become profitless.  You never know what a regulator will do, but my guess is they get their pound of flesh.


I don't think that I've read too many opinions that WFC's conduct was acceptable; rather, there is a consensus that the behaviour was ridiculous.  But, as an investor, that's where it stops.  I am confident that future management will put in place controls to ensure that this type of thing will not happen in the future. 

As an investor, the challenge is to figure out whether the market has overreacted to this event and administered an excessive haircut to WFC's market cap.  It's the same challenge that investors had when Volkswagen announced its emissions issue and when British Petroleum was managing its major oil spill in the Gulf of Mexico.  What is the true economic damage to the company through fines, lawsuits, reputational damage, and enhanced regulatory oversight?  For BP, the market tended to overestimate the economic damage.  For Volkswagen, I don't really know.  But my sense is that for WFC, this whole thing will likely cost the company less than $1B pre-tax...so that might be perhaps $0.15/share after tax.  The haircut to WFC's market cap appears to far exceed my perception of the actual costs that they'll end up incurring.  At a certain point, the declining share price makes for a compelling investment opportunity if one can ignore all of the noise surrounding this issue.

Again, the behaviour is ridiculous...perhaps just as ridiculous as issuing NINJA-loans, securitizing turds and selling them to third parties, robo-signing, and just plain falsifying information on mortgage applications.  Fraudulent behaviour is fraudulent behaviour.  But this time, there's much less potential for loan losses, large fines and litigation.


SJ

I agree, the investor perspective is a bit different.  I guess where I have problems is this:  management brushed this off as just a minor thing.  But I don't think it's minor.  It's an example of a) culture and b) lack of controls.  If a highly regulated institution lacks controls that stop illegal behavior then that's worrying.

One of my relatives works in the internal audit department of a very large bank.  I've asked her about situations like this.  At their bank the controls are so tight that he hurts how bankers and financial advisors operate.  She said a few try to skirt the law each year and they're caught.

To take this out of banking.  This reminds me of companies where when you order an item you get two or three shipments of the same item.  I've had this a few times and it never fails, the company's inventory system is so out of wack that they can't keep track of what they're doing.  Having a company with a system like this doesn't breed trust.

The shares are down from their highs, but I don't think we're in the "everything is priced in and I don't care what happens" territory yet either.
Title: Re: WFC - Wells Fargo
Post by: rb on September 21, 2016, 12:41:57 PM
Yea, I think Stumpf may be done.

Maybe but I imagine the board will consider his track record
I know Well's records is good that why I own it. But If the headlines keep on coming and if they start talking about Berkshire uncle Warren may do his thing. He's had CEOs fired for less.
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 21, 2016, 01:33:28 PM
I am amazed by this fiasco.  I think in many ways it's shown people's true colors.  There are those in the company's management who are willing to do anything to make money.  These things might not have added much to WFC's bottom line, but they bumped up the stock, and with bonuses based on the stock it seems execs did well.  It's shown investor colors as well.  I'm aghast at this.  If I were to take someone's social security number and address and open a credit card in their name I could end up in jail.  But at Wells Fargo it was just a "misaligned incentive" and most are chalking it up as "whoops, no harm done."

If someone walks into a bank and points a gun at a teller and walks away with $25 they have the same punishment as if they walked away with $10,000.  The crime isn't the amount of money taken, it's the action taken.

What galls me about this is it seems management has been pretty effective over the last 8-10 years in morally cleansing the company.  People were fired if they failed to engage in this and meet sales targets.  People who thought this was shady and called the ethics hotline were fired etc.  Natural selection would dictate that right now the place is fairly gutless.  Maybe that's why we saw Stumpf do what he did.

The biggest risk for WFC is regulatory risk.  It's that their ability to conduct business is so hamstrung that they become profitless.  You never know what a regulator will do, but my guess is they get their pound of flesh.

I think you are over-estimating the scale of this. From 2011-2015, 82 million deposit accounts were opened at Wells - of that 82 million, 1.5 million accounts were opened that CANNOT be ruled out that they were not authorized - essentially putting a cap of a maximum of 1.5 million accounts that were created without the customer approving. Moreover, many of these accounts were created and then quickly shut down likely due to fear of discovery. The short time frame in which these accounts were opened and closed meant that the returned fees associated with these accounts have been minimal.

There is no doubt that Wells Fargo has had a strong sales culture - this is why other banks large and small have envied their cross-sell numbers. But I do not believe for a second that this was wide-spread and systemic. It is true that Wells had incentivized strong selling (but which bank or company for that matter doesn't?) and my guess is that they have always sought to reign in bad behavior via strong controls and "inculcation of culture" as Jamie Dimon puts it. Unfortunately, in a bank this big, high sales incentives will ultimately lead to bad behavior somewhere. As Buffett says, "someone in Berkshire at this moment is doing something that I would not like." And in a bank this big, senior executives aren't immediately privy to the details happening on the ground floor.

There is no question that this is appalling behavior and Wells management and the company itself deserves some of the opprobrium that they are now getting. But let's put this into proportion as well.
Title: Re: WFC - Wells Fargo
Post by: KinAlberta on September 21, 2016, 01:36:43 PM
Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

Title: Re: WFC - Wells Fargo
Post by: frank87 on September 21, 2016, 01:49:05 PM
Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

How could Wells have made any money off this if the returned fees were a few million and all the closed deposit and credit card accounts had negligible balances? Clearly an incentive program that produced a few bad apples.
Title: Re: WFC - Wells Fargo
Post by: arcube on September 21, 2016, 02:19:58 PM
I had same thoughts earlier but right after grilling of Stmpf, there were three testimonies from LA Attorney office, OCC and CFPB officials to the Senate committee and when you hear first hand what they investigated and found it might shed more light on this situation.

Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

How could Wells have made any money off this if the returned fees were a few million and all the closed deposit and credit card accounts had negligible balances? Clearly an incentive program that produced a few bad apples.
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 21, 2016, 02:31:41 PM
I had same thoughts earlier but right after grilling of Stmpf, there were three testimonies from LA Attorney office, OCC and CFPB officials to the Senate committee and when you hear first hand what they investigated and found it might shed more light on this situation.

Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

How could Wells have made any money off this if the returned fees were a few million and all the closed deposit and credit card accounts had negligible balances? Clearly an incentive program that produced a few bad apples.

They were trying to connect the supposed cause of the unauthorized accounts - strong sales incentives - with the profits accruing to Wells shareholders and thus management.
Title: Re: WFC - Wells Fargo
Post by: TheAiGuy on September 21, 2016, 02:54:00 PM
Yea, I think Stumpf may be done.

Maybe but I imagine the board will consider his track record
I know Well's records is good that why I own it. But If the headlines keep on coming and if they start talking about Berkshire uncle Warren may do his thing. He's had CEOs fired for less.

I doubt you will see anything public. Wells Fargo has a mandatory retirement policy for senior officers at 65 and Stumpf just turned 63.
Title: Re: WFC - Wells Fargo
Post by: mbreject on September 21, 2016, 03:13:57 PM
Stealing a thought from someone on another forum, was Wells Fargo actually making any money off this, or was it just an incentives program gone wrong with any long term gains being sucked out as short term staff compensation,  admin costs, staff training, policing, new hiring, etc.?

How could Wells have made any money off this if the returned fees were a few million and all the closed deposit and credit card accounts had negligible balances? Clearly an incentive program that produced a few bad apples.

Not all the fees were returned and some negative balances were sent to debt collectors. There's a guy who's actually suing WFC because of this.
Title: Re: WFC - Wells Fargo
Post by: Simple Investor on September 21, 2016, 05:15:24 PM
Plus all the people who actually utilized the credit cards that they were sent (without asking for them).  They ran up interest and other fees. In this case the extra fees that were generated out weighed the refunds. 

Lots of jamming clients with as many services as possible.  Just in case they need them.  Credit cards, Home equity, Margin, etc...
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 21, 2016, 06:24:23 PM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences. 
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 21, 2016, 08:00:16 PM
http://www.foxbusiness.com/markets/2016/09/21/warren-buffett-to-fox-business-ill-remain-silent-on-wells-fargo-for-now.html

Curious. November is 13F season.
Title: Re: WFC - Wells Fargo
Post by: rb on September 21, 2016, 08:01:49 PM
Yea, Zero chance he sells WFC.
Title: Re: WFC - Wells Fargo
Post by: arcube on September 21, 2016, 08:44:39 PM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 22, 2016, 05:07:12 AM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.
Title: Re: WFC - Wells Fargo
Post by: merkhet on September 22, 2016, 07:41:28 AM
Exactly. Neither Wells nor JP Morgan needed the bailout, but they were forced to take it anyway. But like frank87 says, it wouldn't matter in this political climate.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 22, 2016, 07:57:26 AM
Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system.

Rather than being bailed out, WFC suffered unnecessary dilution at very low prices. Luckily the Wachovia acquisition made up for this dilution.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 22, 2016, 08:21:24 AM
This OpEd sums up my opinion on WFC:
http://www.cnbc.com/2016/09/22/stop-beating-up-on-wells-fargo-and-john-stumpf-commentary.html

Rather than firing Stumpf maybe the board should just clawback or forgo his bonus this year.

Honestly, the allegations about whistle blowers being fired is far worse than the original "scandal" (since it implicates senior management in the "fraud".
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 22, 2016, 08:41:09 AM
Quote
At an annual presentation that a Wells Fargo fixed income manager made last week to the Los Angeles Water and Power Employees’ retirement plan, the pension plan’s board president asked how the $185 million settlement made with federal regulators and the City and County of Los Angeles would affect plan members with Wells accounts and about corporate governance in general, according to Fundfire.

“We asked them about the settlement,” the chief investment officer of the pension fund, Jeremy Wolfson, told Fundfire.

Wells manages $936 million for the $12.8 billion plan.

The pension fund is not taking immediate action since it is not directly affected but is “monitoring” developments, he told the publication.

5 years from now we probably won't see any damage to the Wells franchise, but I think they've done a fair amount of damage in the short term. 

Also, I think we're all missing the bigger scandal here. 

http://www.forbes.com/sites/emilywillingham/2016/09/04/wells-fargo-encourages-budding-actors-to-become-botanists-and-apologizes/#115dbd584a56 (http://www.forbes.com/sites/emilywillingham/2016/09/04/wells-fargo-encourages-budding-actors-to-become-botanists-and-apologizes/#115dbd584a56)

An actor yesterday, now a botanist!  I dare say, this is an outrage!  It's time to burn this mother ****** to the ground.
Title: Re: WFC - Wells Fargo
Post by: arcube on September 22, 2016, 09:10:24 AM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

I think you might have missed the point that you eventually make in your own statement. Regardless whether they were forced  or not - they were important for the "financial system". Feds didn't shove billions down Walmart's or Target's throat and that's why what these Big Banks do gets amplified.
Title: Re: WFC - Wells Fargo
Post by: arcube on September 22, 2016, 09:19:18 AM

Rather than firing Stumpf maybe the board should just clawback or forgo his bonus this year.

Honestly, the allegations about whistle blowers being fired is far worse than the original "scandal" (since it implicates senior management in the "fraud".

This makes a lot of sense and it was clear from the testimony that Stumpf doesn't even want to go there when it comes to clawback or forgo current year bonus. He somehow wants this thing over just like Tony Hayward wanted his peace and life back after Macando happened.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on September 25, 2016, 07:52:45 PM

Rather than firing Stumpf maybe the board should just clawback or forgo his bonus this year.

Honestly, the allegations about whistle blowers being fired is far worse than the original "scandal" (since it implicates senior management in the "fraud".

This makes a lot of sense and it was clear from the testimony that Stumpf doesn't even want to go there when it comes to clawback or forgo current year bonus. He somehow wants this thing over just like Tony Hayward wanted his peace and life back after Macando happened.

Well, I think peace will haVe to wait a bit. I think this scandal is bigger than originally assumed, since it is pretty obvious, that senior management not only knew about it, they encouraged it and tried to get rid of those, that didn't want to play along. If it does need turn out that Stumpf directly was involved in firing whistleblowers, he is done for, and so is the rest of WFC's senior management.
http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/ (http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/)
Title: Re: WFC - Wells Fargo
Post by: frank87 on September 26, 2016, 07:23:36 AM

Rather than firing Stumpf maybe the board should just clawback or forgo his bonus this year.

Honestly, the allegations about whistle blowers being fired is far worse than the original "scandal" (since it implicates senior management in the "fraud".

This makes a lot of sense and it was clear from the testimony that Stumpf doesn't even want to go there when it comes to clawback or forgo current year bonus. He somehow wants this thing over just like Tony Hayward wanted his peace and life back after Macando happened.

Well, I think peace will hVe to wait a bit. I think this scandal is bigger than originally assumed, since it is pretty obvious, that senior management not only new about it, they encouraged it and tried to get rid of those, that didn't want to play along. If it does need turn out that Stumpf directly was involved in firing whistleblowers, he is done for, and so is the rest of WFC's senior management.
http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/ (http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/)

When a scandal like this breaks out, there should be no surprise that fired employees come out of the woodwork claiming that they were fired for wrongful cause.
Title: Re: WFC - Wells Fargo
Post by: rb on September 26, 2016, 09:24:14 PM
Yea, this isn't going away

http://www.bloomberg.com/news/articles/2016-09-26/wells-fargo-sued-by-shareholders-over-cross-selling-scandal
Title: Re: WFC - Wells Fargo
Post by: walt373 on September 26, 2016, 10:45:07 PM
Quarter-end is coming up and there might be some selling due to window dressing. Is the scandal bad enough that some managers don't want to be seen with WFC in their portfolios? WFC and MYL with the Epipens were probably the 2 biggest recent scandals. I might be buying if it sells off.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 27, 2016, 04:43:42 AM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

And of course they didn't benefit from the bailouts, right.  Had the US gov't not bailed out the others Wells would have gone down too.  They knew it and did as they were told.   The whining was all Bs for the headlines. 

Anyway none of that is relevant to the facts at hand which is that Wells HAS BEEN badly managed by the higher ups.  They are over paid display dolls.  Dont forget that these were unforced errors.  They would have made the same sales without being a pain in everyones butt.



Quarter-end is coming up and there might be some selling due to window dressing. Is the scandal bad enough that some managers don't want to be seen with WFC in their portfolios? WFC and MYL with the Epipens were probably the 2 biggest recent scandals. I might be buying if it sells off.

It might be a good time to buy, but it isn't cheap enough for me yet.  Mind you the stock should pop when the CEO resigns, and the company makes some show of effort to get some pay back.


Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 27, 2016, 05:00:55 AM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

I think you might have missed the point that you eventually make in your own statement. Regardless whether they were forced  or not - they were important for the "financial system". Feds didn't shove billions down Walmart's or Target's throat and that's why what these Big Banks do gets amplified.

Precisely.  Everything was/is interconnected.  To that end they were required to participate, and should have been require to participate.  The nonsense that Wells management spouted at the time was self serving BS.  They would have gone under without the financial system bailouts.  So of course they willingly participated, probably quite happily, behind closed doors. 
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 27, 2016, 05:35:49 AM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

I think you might have missed the point that you eventually make in your own statement. Regardless whether they were forced  or not - they were important for the "financial system". Feds didn't shove billions down Walmart's or Target's throat and that's why what these Big Banks do gets amplified.

Precisely.  Everything was/is interconnected.  To that end they were required to participate, and should have been require to participate.  The nonsense that Wells management spouted at the time was self serving BS.  They would have gone under without the financial system bailouts.  So of course they willingly participated, probably quite happily, behind closed doors. 


Al,

Just to be completely fair, if the weaker banks failed and the financial system collapsed, how many other companies unrelated to the financial services industry would have gone under?  It's all fine and dandy to say that WFC "owes" Uncle Sam some special consideration because the government prevented a financial system collapse in 2008/09.  But, can we not say the very same thing for Sears Roebuck, Walmart, and pretty much all of the consumer discretionary sector?  If the financial system had collapsed and US gross domestic product fell by 30% as a result, I'm pretty sure that the carnage would have been widespread.  Does Sears Roebuck owe Uncle Sam some sort of special consideration for its indirect bail-out in 2008/09?  What about Carnival Cruise Lines, do they owe Uncle Sam some sort of consideration for the benefits that they realised from the financial system bail-out?

The deadbeats were the ones who *needed* a direct cash injection as a result of the bad management of their particular enterprise.  Do not extend that category to include unrelated, well-run businesses.
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on September 27, 2016, 05:52:53 AM
Banks in Europe getting a walloping, so good chance we will see a new 52 week low today for Wells.
Title: Re: WFC - Wells Fargo
Post by: alpha23 on September 27, 2016, 05:44:25 PM
Wells Fargo Claws Back Millions From CEO After Scandal - http://www.wsj.com/articles/wells-fargo-board-actively-considering-executive-clawbacks-1474985652

Quote
Wells Fargo & Co.’s board said it plans to claw back $41 million in compensation from Chairman and Chief Executive John Stumpf as punishment for the bank’s burgeoning sales-tactics scandal, marking the first time since at least the financial crisis that a major U.S. financial institution has forced its top executive to relinquish previously earned compensation...
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on September 27, 2016, 06:26:39 PM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.
.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

I think you might have missed the point that you eventually make in your own statement. Regardless whether they were forced  or not - they were important for the "financial system". Feds didn't shove billions down Walmart's or Target's throat and that's why what these Big Banks do gets amplified.



Precisely.  Everything was/is interconnected.  To that end they were required to participate, and should have been require to participate.  The nonsense that Wells management spouted at the time was self serving BS.  They would have gone under without the financial system bailouts.  So of course they willingly participated, probably quite happily, behind closed doors. 


Al,

Just to be completely fair, if the weaker banks failed and the financial system collapsed, how many other companies unrelated to the financial services industry would have gone under?  It's all fine and dandy to say that WFC "owes" Uncle Sam some special consideration because the government prevented a financial system collapse in 2008/09.  But, can we not say the very same thing for Sears Roebuck, Walmart, and pretty much all of the consumer discretionary sector?  If the financial system had collapsed and US gross domestic product fell by 30% as a result, I'm pretty sure that the carnage would have been widespread.  Does Sears Roebuck owe Uncle Sam some sort of special consideration for its indirect bail-out in 2008/09?  What about Carnival Cruise Lines, do they owe Uncle Sam some sort of consideration for the benefits that they realised from the financial system bail-out?

The deadbeats were the ones who *needed* a direct cash injection as a result of the bad management of their particular enterprise.  Do not extend that category to include unrelated, well-run businesses.


Nobody knew who was insolvent at that time (or becoming insolvent), so the treasury did the right thing and propped all of them. I think if they had not done so, the financial system would have gone into a meltdown and no financial institution would have survived. BY putting the support of the Us government behind them, the meltdown was avoided,

I guess some folks don't remember how bad it was. Perfectly good bonds were trading for less than 50c in the dollar and 20% yields in October 2015, because there were no bids. No bank would have made it out that mess, if this had persisted for an extended period of time
Title: Re: WFC - Wells Fargo
Post by: DonFanucci on September 28, 2016, 06:04:40 AM
Nobody knew who was insolvent at that time (or becoming insolvent), so the treasury did the right thing and propped all of them. I think if they had not done so, the financial system would have gone into a meltdown and no financial institution would have survived. BY putting the support of the Us government behind them, the meltdown was avoided,

I guess some folks don't remember how bad it was. Perfectly good bonds were trading for less than 50c in the dollar and 20% yields in October 2015, because there were no bids. No bank would have made it out that mess, if this had persisted for an extended period of time

I think plenty of people do remember that, considering how often it's asserted that the government needed to bail everyone out or society would have collapsed. What's not remembered is that the same people caused the problem in the first place. When the government took over Washington Mutual, it superseded all precedence and paid off depositors (even the uninsured) in full at the expense of bond holders who would have been senior debt in restructuring. Who is going to buy bank debt when there's no more rule of law and the government is flying by the seat of its pants?

The CEO of BB&T at the time:
"The decision to treat WaMu bondholders this way closed the capital markets for banks. BB& T had issued bonds a few weeks before the WaMu decision. It was a choppy market, but we had been able to raise capital funding. However, after the WaMu debtholders were crushed, the capital markets closed for all banks. I believe this was an even more significant event than Lehman Brothers’ failure. I think one of the main reasons that Bernanke and Paulson were so panicky when they went to Congress for $700 billion for the Troubled Asset Relief Program (TARP)— the so-called bank bailout— was that they realized that they had closed the capital markets for banks."
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 28, 2016, 06:34:11 AM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.
.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

I think you might have missed the point that you eventually make in your own statement. Regardless whether they were forced  or not - they were important for the "financial system". Feds didn't shove billions down Walmart's or Target's throat and that's why what these Big Banks do gets amplified.



Precisely.  Everything was/is interconnected.  To that end they were required to participate, and should have been require to participate.  The nonsense that Wells management spouted at the time was self serving BS.  They would have gone under without the financial system bailouts.  So of course they willingly participated, probably quite happily, behind closed doors. 


Al,

Just to be completely fair, if the weaker banks failed and the financial system collapsed, how many other companies unrelated to the financial services industry would have gone under?  It's all fine and dandy to say that WFC "owes" Uncle Sam some special consideration because the government prevented a financial system collapse in 2008/09.  But, can we not say the very same thing for Sears Roebuck, Walmart, and pretty much all of the consumer discretionary sector?  If the financial system had collapsed and US gross domestic product fell by 30% as a result, I'm pretty sure that the carnage would have been widespread.  Does Sears Roebuck owe Uncle Sam some sort of special consideration for its indirect bail-out in 2008/09?  What about Carnival Cruise Lines, do they owe Uncle Sam some sort of consideration for the benefits that they realised from the financial system bail-out?

The deadbeats were the ones who *needed* a direct cash injection as a result of the bad management of their particular enterprise.  Do not extend that category to include unrelated, well-run businesses.


Nobody knew who was insolvent at that time (or becoming insolvent), so the treasury did the right thing and propped all of them. I think if they had not done so, the financial system would have gone into a meltdown and no financial institution would have survived. BY putting the support of the Us government behind them, the meltdown was avoided,

I guess some folks don't remember how bad it was. Perfectly good bonds were trading for less than 50c in the dollar and 20% yields in October 2015, because there were no bids. No bank would have made it out that mess, if this had persisted for an extended period of time


No, we all remember that mess quite well, and I personally made a pile of money at that time by investing in the financial sector. 

Go back and read my post again.  Nowhere did I say that the US government was wrong to bail out the financial sector, because quite clearly a complete collapse of the financial system may have triggered a drastic decline in GDP.  In fact, that was entirely my point.  The decision to bail out the weakest banks probably prevented complete carnage in many other sectors of the economy that are completely unrelated to the troubled banks (principally the consumer discretionary sector). 

So, here we are eight years later.  After the government forced WFC to take TARP (despite WFC, as an individual company, not needing TARP), can we really say that WFC was a greater beneficiary of the bailout than Home Depot, Disney or Carnival Cruise Lines?  Clearly all of those businesses would have been devastated by a hypothetical 25% or 30% decline in GDP that might have ensued in the absence of the bailout.  But as an individual company, WFC didn't need the TARP program to ensure its solvency any more than HD or CCL needed it (which is to say that all of them would have been in trouble without it).  All of those companies (and many more) benefited from the financial bailout despite not having managed their business in a reckless fashion.  So why would we ever say that WFC has any greater moral debt to Uncle Sam than HD, DIS, or CCL?  None of them needed the bailout because of their own recklessness, but they all benefited from it....
Title: Re: WFC - Wells Fargo
Post by: DonFanucci on September 28, 2016, 07:11:12 AM
So why would we ever say that WFC has any greater moral debt to Uncle Sam than HD, DIS, or CCL?  None of them needed the bailout because of their own recklessness, but they all benefited from it....

This is true but it's even worse than that. The government inflates a massive bubble through the mismanagement of interest rates and government sponsored entities, then it destroys the credit markets for financial institutions, then it forces WFC to take money, and now WFC forever owes a debt to the government?
Title: Re: WFC - Wells Fargo
Post by: TwoCitiesCapital on September 28, 2016, 07:51:38 AM
So why would we ever say that WFC has any greater moral debt to Uncle Sam than HD, DIS, or CCL?  None of them needed the bailout because of their own recklessness, but they all benefited from it....

This is true but it's even worse than that. The government inflates a massive bubble through the mismanagement of interest rates and government sponsored entities, then it destroys the credit markets for financial institutions, then it forces WFC to take money, and now WFC forever owes a debt to the government?

Sounds about right. They did the same with Fannie and Freddie, only the takings was much, much, much more explicit.

Realistically, we have systems for this sort of thing - the Fed was originally established as a lender of last resort to prevent this very daisy chain of failures we're talking about. Unfortunately, they've become much more involved manipulating interest rates, money supply, and capital markets and less involved with their original function.

The bad banks should have failed and the Fed should have provided the liquidity to the companies with the most exposure to the bad banks to prevent the daisy chain impact while well established bankruptcy rules/precedent worked out the assets to settle trade liabilities. Instead, the gov't went willy-nilly forcing bailouts on companies, ruining the established order of capital protections, creating much more uncertainty while make companies far more dependent on it, and forcing mega-mergers to make companies that were "too big to fail" even larger.

Real winning strategy it seems. Things would have been bad for a time, but the excess would have cleared, markets would be MORE stable because established precedent would have been maintained, the strong would have survived, and balance sheets would have been repaired/reset.

That would have likely led to a lower trough, but a much faster recovery instead of years of this muddling through and increasing reliance on Federal Reserve policy for a next policy-induced high.
Title: Re: WFC - Wells Fargo
Post by: Candyman1 on September 28, 2016, 08:04:01 AM
"Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact."

I do agree that WFC was in better shape than other banks, but if the other banks would have been allowed to fail WFC would have been toast too. We'd all be eating at McDonalds. 
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 28, 2016, 09:51:28 AM
What's the difference between this Wells Fargo issue and these stories that went unnoticed?

http://www.bizjournals.com/sacramento/news/2012/03/21/calif-walmart-overcharge-customers.html

http://fox5sandiego.com/2015/02/11/target-to-pay-4m-fine-for-overcharging-customer/

Saying the CEO should be fired is like saying the CEOs of Walmart and Target should have been fired for giving store managers sales goals.  When you incentivize anything, there will be unintended consequences.

I would guess they were not bailed out by American taxpayers in the recent past.

Wells was not bailed out. They were forced to take on TARP as a show of solidarity in the financial system. But of course, the politics of the day and the mainstream will obfuscate that fact.

I think you might have missed the point that you eventually make in your own statement. Regardless whether they were forced  or not - they were important for the "financial system". Feds didn't shove billions down Walmart's or Target's throat and that's why what these Big Banks do gets amplified.

Precisely.  Everything was/is interconnected.  To that end they were required to participate, and should have been require to participate.  The nonsense that Wells management spouted at the time was self serving BS.  They would have gone under without the financial system bailouts.  So of course they willingly participated, probably quite happily, behind closed doors. 


Al,

Just to be completely fair, if the weaker banks failed and the financial system collapsed, how many other companies unrelated to the financial services industry would have gone under?  It's all fine and dandy to say that WFC "owes" Uncle Sam some special consideration because the government prevented a financial system collapse in 2008/09.  But, can we not say the very same thing for Sears Roebuck, Walmart, and pretty much all of the consumer discretionary sector?  If the financial system had collapsed and US gross domestic product fell by 30% as a result, I'm pretty sure that the carnage would have been widespread.  Does Sears Roebuck owe Uncle Sam some sort of special consideration for its indirect bail-out in 2008/09?  What about Carnival Cruise Lines, do they owe Uncle Sam some sort of consideration for the benefits that they realised from the financial system bail-out?

The deadbeats were the ones who *needed* a direct cash injection as a result of the bad management of their particular enterprise.  Do not extend that category to include unrelated, well-run businesses.

That is a fair assessment. 

There are other things to consider.  The banks operate at arms length from the government unlike a Sears, Home Depot or Walmart.  The larger banks trade with the government every single day.  The  government loans them money at low rates, and they theoretically lend it out at slightly higher rates.  The government involves them in treasury sales.  They are very reliant on the government, in every country in the world, and always have been.  I am not talking about the community savings and loan here.  I am talking about the big money center banks.  Wells had an obilgation to do what they were asked to help maintain the system.  If they had refused government would have cut them off from a major profit center, amd theynwould hage gone under.  It is not unlike the situation in the very early 1900s when JP Morgan (the individual) pulled all the big financiers into a room and wouldn't let them go until they signed onto his plan and privided capital. 

All this is around about way of saying that money center banks operate at the grace of government and always have.  They are back to being the regulated ultilities they once were, before the Reagan/Clinton eras.  When they misbehave they will get slapped.  Home Depot can misbehave and not get slapped by the government because they are not directly regulated beyond consumer protection acts.  No one is going to call the HD Ceo before senate because they encouraged staff to cross sell carpet and floor tiles.  But weakness in Home Depot is so much further down the economic chain than a big bank that the government doesn't care if they go under. 
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 28, 2016, 10:04:21 AM
So why would we ever say that WFC has any greater moral debt to Uncle Sam than HD, DIS, or CCL?  None of them needed the bailout because of their own recklessness, but they all benefited from it....

This is true but it's even worse than that. The government inflates a massive bubble through the mismanagement of interest rates and government sponsored entities, then it destroys the credit markets for financial institutions, then it forces WFC to take money, and now WFC forever owes a debt to the government?

Sounds about right. They did the same with Fannie and Freddie, only the takings was much, much, much more explicit.

Realistically, we have systems for this sort of thing - the Fed was originally established as a lender of last resort to prevent this very daisy chain of failures we're talking about. Unfortunately, they've become much more involved manipulating interest rates, money supply, and capital markets and less involved with their original function.

The bad banks should have failed and the Fed should have provided the liquidity to the companies with the most exposure to the bad banks to prevent the daisy chain impact while well established bankruptcy rules/precedent worked out the assets to settle trade liabilities. Instead, the gov't went willy-nilly forcing bailouts on companies, ruining the established order of capital protections, creating much more uncertainty while make companies far more dependent on it, and forcing mega-mergers to make companies that were "too big to fail" even larger.

Real winning strategy it seems. Things would have been bad for a time, but the excess would have cleared, markets would be MORE stable because established precedent would have been maintained, the strong would have survived, and balance sheets would have been repaired/reset.

That would have likely led to a lower trough, but a much faster recovery instead of years of this muddling through and increasing reliance on Federal Reserve policy for a next policy-induced high.

Your are not wrong.  The problem was (and still is):  How do you tell who is stronger/weaker in an incredibly fast moving situation as 2008.  No doubt you have tried to read and understand the balance sheet of any major bank as I have.  We, including Buffett and each banks CEOs, have no real idea of their exposure to other institutions through their derivatives books.  Operating from this standpoint the government did the right thing with the information at hand.  If Wells lied, or actually wasn't sure of what was on their books, and went under, things would have been far worse.  As it was they did as they were told and its water under the bridge now.  Its all acconted in the diluted EPS.  It doesn't excuse them from future infractions. 

To your point on the muddle through.  IMO other forces are at work, specifically the slowdown in population growth, and the effect of technology on job creation.  Governments will keep muddling as they always have. 
Title: Re: WFC - Wells Fargo
Post by: DonFanucci on September 28, 2016, 11:11:29 AM
Your are not wrong.  The problem was (and still is):  How do you tell who is stronger/weaker in an incredibly fast moving situation as 2008.  No doubt you have tried to read and understand the balance sheet of any major bank as I have.  We, including Buffett and each banks CEOs, have no real idea of their exposure to other institutions through their derivatives books.  Operating from this standpoint the government did the right thing with the information at hand.  If Wells lied, or actually wasn't sure of what was on their books, and went under, things would have been far worse.  As it was they did as they were told and its water under the bridge now.  Its all acconted in the diluted EPS.  It doesn't excuse them from future infractions. 

To your point on the muddle through.  IMO other forces are at work, specifically the slowdown in population growth, and the effect of technology on job creation.  Governments will keep muddling as they always have.

I don't see how this is the case. They are the ones that froze the credit markets. Why should they be praised for administering medicine to cure an illness they caused?
Title: Re: WFC - Wells Fargo
Post by: rb on September 28, 2016, 11:51:19 AM
This ain't good

http://www.bloomberg.com/news/articles/2016-09-28/california-suspends-business-relationships-with-wells-fargo-itn9dfxw
Title: Re: WFC - Wells Fargo
Post by: Grenville on September 28, 2016, 04:11:07 PM
This ain't good

http://www.bloomberg.com/news/articles/2016-09-28/california-suspends-business-relationships-with-wells-fargo-itn9dfxw

nope not good…they are suspending their relationship for a year…I hope Stumpf is getting the message a little more clearly

Quote
“I have a duty as a leader in the financial marketplace to take action aimed at helping you understand that integrity and trust matter,” Chiang wrote in his letter to Wells Fargo. “How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who have placed their financial well-being in its care?”

Here's a link to his statement:
http://www.treasurer.ca.gov/news/releases/2016/20160928.pdf (http://www.treasurer.ca.gov/news/releases/2016/20160928.pdf)

Looks like he's trying to run for Governor of CA in 2018…using WFC as a political platform
Title: Re: WFC - Wells Fargo
Post by: meiroy on September 28, 2016, 05:41:30 PM

What's really "not good" about this is that it might lead to even more excessive regulation on banks and cause a slow-down in the economy followed by a recession.   
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 28, 2016, 05:49:52 PM
This ain't good

http://www.bloomberg.com/news/articles/2016-09-28/california-suspends-business-relationships-with-wells-fargo-itn9dfxw


Sure, it's not good.  But, turning to some school-boy arithmetic, what sort of underwriting profit might this cost WFC?  Suppose WFC would normally make 2.5% underwriting profit on let's say $100 billion of debt that California might need underwritten during a year.  That's like $2.5B, pre-tax, or about $0.40/share post-tax.  Both the 2.5% and the $100B are probably very generous, meaning the $0.40/sh is probably far too high.


SJ
Title: Re: WFC - Wells Fargo
Post by: Mephistopheles on September 29, 2016, 01:51:42 AM
The problem is who else is going to follow and take California's lead? The NY MTA has also done the same thing though their actions were independent. This can potentially get very ugly as municipalities across the country try to score political points. This idiot in CA is running for governor in 2018, go figure.

Btw, CA is Wells' biggest client in munis.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 29, 2016, 04:37:15 AM
The stock is not cheap enough yet.  Jpm got hammered way worse after the "whale" incident.  It needs to be in the mid 30s for me to get remotely interested.  If this doesn't take it there it will get there in the next recession. 
Title: Re: WFC - Wells Fargo
Post by: DTEJD1997 on September 29, 2016, 07:44:07 AM
Hey all:

Can somebody explain to me how WFC does NOT spend tens of millions or HUNDREDS of millions fending off numerous class action law suits?  OR in the case of people who had their credit report damaged, failed to get a job/mortgage, individual law suits?

OR as another poster postulated, lots of municipalities pulling their business from WFC?

THEN on top of all of that, you've got the execs from WFC testifying in front of Congress.  That looks terrible.

THEN you've got these banksters making tens of millions in bonus & pay...Sure, they are smart & hard workers, but they get paid tens of millions?  I would think one of the biggest cost savings would be outsourcing these "C" level jobs!  Just think of all the money they could save!  These dudes were paid tens of millions and they didn't know systemic fraud was going on?  Yep, outsource that job!  I bet you could get a non-American to work that job for only $2MM a year + pension + health care.  Heck, I might even apply!

Bottom line is I think WFC has a real chance of being permanently damaged here.  We'll see.
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 29, 2016, 07:55:55 AM
The difference with the London Whale is that 2008 was still fresh in everyone's mind so the reaction was much more fearful.  I don't know what direct losses will come from this Wells problem but it probably won't be very much.  Let's say it's a $2 billion hit to the underlying earnings (seems over the top but I'll go with it), @ 10x that should be about a $20 billion market cap loss.  Which is basically what it lost in value.  That's also after a few years of multiple contraction, so you could argue that Wells might have been too expensive in 2014 or too cheap going into this decline.  Maybe a combination of both.  But it seems like it could be a fairly decent investment at this price.  Not amazing, but decent.
Title: Re: WFC - Wells Fargo
Post by: bearprowler6 on September 29, 2016, 07:57:54 AM
The stock is not cheap enough yet.  Jpm got hammered way worse after the "whale" incident.  It needs to be in the mid 30s for me to get remotely interested.  If this doesn't take it there it will get there in the next recession.

+1

As I await a lower entry point on the stock I continue to wonder whether or not  WFC meets Munger's "sewer" test definition?
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 29, 2016, 09:23:09 AM
The stock is not cheap enough yet.  Jpm got hammered way worse after the "whale" incident.  It needs to be in the mid 30s for me to get remotely interested.  If this doesn't take it there it will get there in the next recession.

+1

As I await a lower entry point on the stock I continue to wonder whether or not  WFC meets Munger's "sewer" test definition?

Can anybody come up with a company with a market cap above $25 billion that has been in business longer than a decade and has never had an employee (or group of employees) cause $2 million or more in damages to consumers?
Title: Re: WFC - Wells Fargo
Post by: cmlber on September 29, 2016, 09:27:02 AM
This ain't good

http://www.bloomberg.com/news/articles/2016-09-28/california-suspends-business-relationships-with-wells-fargo-itn9dfxw


Sure, it's not good.  But, turning to some school-boy arithmetic, what sort of underwriting profit might this cost WFC?  Suppose WFC would normally make 2.5% underwriting profit on let's say $100 billion of debt that California might need underwritten during a year.  That's like $2.5B, pre-tax, or about $0.40/share post-tax.  Both the 2.5% and the $100B are probably very generous, meaning the $0.40/sh is probably far too high.


SJ

Your math is very conservative.  The average fee underwriting muni bonds is 0.5%, 1/5 of your #.  California issues ~$70 billion/year in muni bonds.  If WFC gets all of those deals (and assuming they aren't well below average profitbailty, which I'm sure they are given the size of the borrower) and assuming there are no underwriting expenses, the earnings hit would be less than 1/10th your estimate.

I know you were intentionally being conservative, just pointing out how conservative...
Title: Re: WFC - Wells Fargo
Post by: rb on September 29, 2016, 09:46:36 AM
Guys, this isn't about just one specific event. What's not good is that they're not nipping this thing in the bud, clean the slate and push the reset button. As a consequence the hits keep on coming. Lat week we were talking about a 2 million hit to fees and maybe a 20 million lawsuit. This week we're talking maybe 250 mil pre tax and the hits keep on coming.  Just as I'm typing this note this hits Bloomberg:

http://www.bloomberg.com/news/articles/2016-09-29/wells-fargo-troubles-mount-with-penalty-for-soldiers-car-loans
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 29, 2016, 09:56:13 AM
Guys, this isn't about just one specific event. What's not good is that they're not nipping this thing in the bud, clean the slate and push the reset button. As a consequence the hits keep on coming. Lat week we were talking about a 2 million hit to fees and maybe a 20 million lawsuit. This week we're talking maybe 250 mil pre tax and the hits keep on coming.  Just as I'm typing this note this hits Bloomberg:

http://www.bloomberg.com/news/articles/2016-09-29/wells-fargo-troubles-mount-with-penalty-for-soldiers-car-loans

I think the market/consumers/politicians just wants to see Stumff fired.  The longer Stumph stays on, the worse it's going to get.  If only there was someone who could call Stump to nudge him in the right direction...  Maybe then we'll get a "Stumf is out" rally and things will go back to business as usual.
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on September 29, 2016, 10:19:26 AM
Guys, this isn't about just one specific event. What's not good is that they're not nipping this thing in the bud, clean the slate and push the reset button. As a consequence the hits keep on coming. Lat week we were talking about a 2 million hit to fees and maybe a 20 million lawsuit. This week we're talking maybe 250 mil pre tax and the hits keep on coming.  Just as I'm typing this note this hits Bloomberg:

http://www.bloomberg.com/news/articles/2016-09-29/wells-fargo-troubles-mount-with-penalty-for-soldiers-car-loans

The issue I pointed out earlier in this thread is one of controls.  This article points out the same, there are no or almost no controls in place for these things.  It said loan officers never checked military status.  This is something that ALL banks are required to do, they are required to keep track of this status.  I know banks that are a very small fraction of WFC's size that keep accurate track of this.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 29, 2016, 10:23:23 AM
If only there was someone who could call Stump to nudge him in the right direction...

When Buffett asked the fed to allow him to go past 10% ownership of WFC, the application stated:

Quote
Buffett’s company has no plans to merge Wells Fargo with another firm or to make any significant changes to its strategy or corporate structure, according to the application, which is dated June 14. Nor is Berkshire contemplating any changes to the San Francisco-based bank’s board, the company said.

I wonder whether this limits Buffett's role in this scandal.
Title: Re: WFC - Wells Fargo
Post by: rb on September 29, 2016, 10:27:37 AM
If only there was someone who could call Stump to nudge him in the right direction...

When Buffett asked the fed to allow him to go past 10% ownership of WFC, the application stated:

Quote
Buffett’s company has no plans to merge Wells Fargo with another firm or to make any significant changes to its strategy or corporate structure, according to the application, which is dated June 14. Nor is Berkshire contemplating any changes to the San Francisco-based bank’s board, the company said.

I wonder whether this limits Buffett's role in this scandal.
I don't think it does. It may be the case that Buffett won't say or do anything publicly. But he knows how to get it done with a wink and a nudge if he wants to.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 29, 2016, 10:39:45 AM
I don't think it does. It may be the case that Buffett won't say or do anything publicly. But he knows how to get it done with a wink and a nudge if he wants to.

Not much point speculating on Buffett, but this speculation from Becky Quick is interesting nonetheless:
https://uk.finance.yahoo.com/video/buffett-denies-kass-report-wells-154100450.html
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on September 29, 2016, 10:44:23 AM
Guys, this isn't about just one specific event. What's not good is that they're not nipping this thing in the bud, clean the slate and push the reset button. As a consequence the hits keep on coming. Lat week we were talking about a 2 million hit to fees and maybe a 20 million lawsuit. This week we're talking maybe 250 mil pre tax and the hits keep on coming.  Just as I'm typing this note this hits Bloomberg:

http://www.bloomberg.com/news/articles/2016-09-29/wells-fargo-troubles-mount-with-penalty-for-soldiers-car-loans

I think the market/consumers/politicians just wants to see Stumff fired.  The longer Stumph stays on, the worse it's going to get.  If only there was someone who could call Stump to nudge him in the right direction...  Maybe then we'll get a "Stumf is out" rally and things will go back to business as usual.

I think you're right. Seems like someone at the big banks needs to be sacrificed and it was never going to be Jamie. Stumpf is the only remaining CEO from the old guard. I wonder if folks are waiting to sack him closer to election day.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 29, 2016, 10:45:21 AM
Jpm got hammered way worse after the "whale" incident.

Two things:
- London Whale was a great buying opportunity
- London Whale was a potential direct loss of $9B. WFC's potential direct losses are probably closer to $1B.

The impact on reputation and regulation is difficult to quantify. But I wonder how much recency bias impacts your assessment. Objectively, JPM deserved to get hammered way worse after the London Whale.
Title: Re: WFC - Wells Fargo
Post by: rb on September 29, 2016, 11:02:23 AM
That's right London Whale and this is are nothing alike. I haven't bought JPM then or ever since. Frankly their derivatives book scares the shit outta me.

At JPM you have lax controls in a massive derivatives trading operation. That is a life threatening thing for a bank. At WFC you have lax compliance controls at a retail bank. That is a job threatening event for the CEO that comes with negative headlines and some volatility in the stock price but the bank will be ok.

I know that there are fan boys here, but I don't have a problem if a bank CEO or two get the sack. But i do care if i take a large and permanent impairment to the value of the company.
Title: Re: WFC - Wells Fargo
Post by: Cardboard on September 29, 2016, 12:46:25 PM
If I have the choice between WFC and BAC today, my pick is the latter.

WFC has always had great profitability numbers but, I suspect that they are going to go through a major culture change which will mean more control at all levels which will slow them down: higher cost, less entrepreneurial culture, etc.

In the end, their numbers should mean revert or make them closer to other banks. It almost sounds like they are like the other banks with dubious practices or prior to 2008.

On the other hand, BAC is on the way up with an improving culture and improving profitability. Price of entry is lower vs book. The bar is set pretty low for them to surprise.

Cardboard
Title: Re: WFC - Wells Fargo
Post by: rb on September 29, 2016, 12:51:05 PM
I guess you can probably do well with BAC. What's keeping me away from that one is Merrill Lynch and the derivatives book. I'm ok getting a somewhat lower return with WFC and not having to worry about that. Different strokes.
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on September 29, 2016, 02:19:39 PM
If I have the choice between WFC and BAC today, my pick is the latter.

WFC has always had great profitability numbers but, I suspect that they are going to go through a major culture change which will mean more control at all levels which will slow them down: higher cost, less entrepreneurial culture, etc.

In the end, their numbers should mean revert or make them closer to other banks. It almost sounds like they are like the other banks with dubious practices or prior to 2008.

On the other hand, BAC is on the way up with an improving culture and improving profitability. Price of entry is lower vs book. The bar is set pretty low for them to surprise.

Cardboard

http://www.marketwatch.com/story/thousands-of-complaints-suggest-account-issues-not-limited-to-wells-fargo-2016-09-12

I'd bet money BAC has (and maybe still is) doing essentially the same thing as WFC. Over the last 7 years, everyone has been trying to replicate WFC's branch efficiency. This is more widespread than what's being portrayed.
Title: Re: WFC - Wells Fargo
Post by: Ulrich on September 29, 2016, 02:47:09 PM
Hello,

i have to say "i don t understand what this whole scandal is about". These scandals about Wells Fargo take place in every bank around the globe and i know of a lot of German Banks that harmed their customers much much worser.

Wells fargo makes over half their income of interest income. The rest comes from different sources, the fees are only a small part of Wells Fargo's income. I think this is in the end not a big thing and if the world don t goes into a great economic downturn or Deutsche Bank goes bankrupt this year... no one will remember this in two years.

Wells Fargo has very little derivative exposure, good loans ( i checked again) and moderate leverage and is growing nicely in loans and deposits and pays a good dividend. I think the whole thing is greatly overdone!
Title: Re: WFC - Wells Fargo
Post by: undervalued on September 29, 2016, 02:57:45 PM
http://www.cnbc.com/2016/09/29/warren-buffett-denies-report-that-he-wants-major-changes-at-wells-fargo.html (http://www.cnbc.com/2016/09/29/warren-buffett-denies-report-that-he-wants-major-changes-at-wells-fargo.html)

It's funny that Buffett had to tell him that the interview didn't go so well. I guess in Stumpf's mind, his interview went well. That's what happen if you have too much confidence.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 29, 2016, 03:41:52 PM
Thanks Undervalued, that link seems to have the wrong video. Here is a direct link:
http://video.cnbc.com/gallery/?video=3000555324
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 29, 2016, 04:26:02 PM
Hey all:

Can somebody explain to me how WFC does NOT spend tens of millions or HUNDREDS of millions fending off numerous class action law suits?  OR in the case of people who had their credit report damaged, failed to get a job/mortgage, individual law suits?

OR as another poster postulated, lots of municipalities pulling their business from WFC?

THEN on top of all of that, you've got the execs from WFC testifying in front of Congress.  That looks terrible.

THEN you've got these banksters making tens of millions in bonus & pay...Sure, they are smart & hard workers, but they get paid tens of millions?  I would think one of the biggest cost savings would be outsourcing these "C" level jobs!  Just think of all the money they could save!  These dudes were paid tens of millions and they didn't know systemic fraud was going on?  Yep, outsource that job!  I bet you could get a non-American to work that job for only $2MM a year + pension + health care.  Heck, I might even apply!

Bottom line is I think WFC has a real chance of being permanently damaged here.  We'll see.


You are absolutely right.  WFC is certainly at risk of incurring fines/litigation in the hundreds of millions of dollars.  But divide that by 5 billion shares.  If this nonsense ends up being a one-time cost of $1 billion, that's $0.20/share pre-tax, or about 20% of one-quarter's earnings.  And if a few municipalities move their business elsewhere, that might be a temporary hit of $0.10 or $0.20/share annualized for the period where the municipalities act silly.

In terms of WFC's longer term reputation, I would observe that for a consumer, changing banks is a serious pain in the ass.  A consumer needs to be seriously pissed off to change from one bank to another (and almost no clients will be so pissed off that they change).  Corporate clients have little incentive to change either.  The only clients who have much of an incentive to change are grand-standing politicians....and what does that amount to?

No, the big cost over the longer term will be that the replacement management (after Stumpf gets canned/resigns) will be excessively conservative for a few years.


SJ
Title: Re: WFC - Wells Fargo
Post by: Picasso on September 29, 2016, 04:45:57 PM
No, the big cost over the longer term will be that the replacement management (after Stumpf gets canned/resigns) will be excessively conservative for a few years.

Sounds like Wells shareholders will get a feel for what it's like to have a Moynihan as CEO.
Title: Re: WFC - Wells Fargo
Post by: Travis Wiedower on September 29, 2016, 05:02:35 PM
In terms of WFC's longer term reputation, I would observe that for a consumer, changing banks is a serious pain in the ass.  A consumer needs to be seriously pissed off to change from one bank to another (and almost no clients will be so pissed off that they change). 

I'd be surprised if "almost no" clients leave over this. If I was one of those clients directly affected I'd 100% be leaving. I'd think others would as well just over principal. I left 5/3 over way less.
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 29, 2016, 05:48:32 PM
In terms of WFC's longer term reputation, I would observe that for a consumer, changing banks is a serious pain in the ass.  A consumer needs to be seriously pissed off to change from one bank to another (and almost no clients will be so pissed off that they change). 

I'd be surprised if "almost no" clients leave over this. If I was one of those clients directly affected I'd 100% be leaving. I'd think others would as well just over principal. I left 5/3 over way less.


So what is the issue that you perceive will trigger departures?  Out of 80+million accounts there were possibly 2 million unauthorized accounts created, of which about 200,000 incurred service charges.  So, if I've understood correctly, about 97.5% of clients were completely unaffected by these shenanigans.  Possibly another 2.25% of clients might have had accounts opened in their name and them rapidly closed, and they are probably blissfully unaware that it ever happened.  And possibly then another 0.25% of clients might have had an account opened without their approval, with service charges levied.

Of these clients, who is pissed off enough to change banks?  Who is pissed off enough to visit the HR department at their employer to fill out a form to change their payroll deposit to another bank?  And who is pissed off enough to change all of their automated bill payments to another bank?  And who is pissed off enough to take an hour out of their day to visit a new bank and open a new chequing account?  And who is so pissed off that they go to the trouble of moving their IRA/401K to another bank?

Switching financial institutions is a serious pain in the ass.  You need to be very pissed off with your bank to do so.  Which percentage of WFC's clients have a reason to go to that much trouble?  A few might move as a matter of principle, but these will be a very, very small minority of consumer advocate type of clients (and probably WFC would be better off without most of them).  Overall, I'd say damned few client will invest the time and effort to move, particularly since it seems like 99% of clients wouldn't even perceive that they were affected.


SJ
Title: Re: WFC - Wells Fargo
Post by: rb on September 29, 2016, 07:15:00 PM
Well some will leave. Their reasons will vary: principle indignation, whatever. But the numbers will be small and won't have much impact on IV.

The question on the bigger impact on IV is what's Wells' profitability going to be if they stop being the pedal to the the metal selling machine. Or as another poster mentioned when Stumpf gets canned and the new team is really gun shy. Or winning less new customers as they otherwise would have.

I'm with you. I think that all of the above will have an impact on IV but that it will be fairly small. I'm definitely selling my Wells stock and looking to buy more. Nonetheless I'm pissed off with the CEO that he was really sloppy about this. He totally underestimated the magnitude of the situation and was unprepared. Dealing with this kind of crap is part of his job. That's why he's paid the big bucks.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 29, 2016, 07:46:14 PM
The stock is not cheap enough yet.  Jpm got hammered way worse after the "whale" incident.  It needs to be in the mid 30s for me to get remotely interested.  If this doesn't take it there it will get there in the next recession.

+1

As I await a lower entry point on the stock I continue to wonder whether or not  WFC meets Munger's "sewer" test definition?

Between the phony accounts and now the soldiers issue, Wells is the new BAC.  There is no way they avoid billions in legal expenses, fines, penalties, lawsuits etc.  Anyone here who thinks they dont eat one or two years earnings over this is naive. 

Others are posting about the fact that most retail customers wont leave.  On this I agree, but they are now on every single public entities list as a bad actor and there is no avoiding it.  Wells is in a situation of death by a thousand cuts:  Loss of money to fines, loss of money defending class action lawsuits, employee dismissal suits, soldier lawsuits, more fines, the cost of expensive external reviews throughout  the business, and losses from public entities cutting Wells out of business. 

And now they are under the microscope and that will surely bring out a whole bunch more dubious practices, and all the associated costs.  The class action lawsuit from dismissed and mistreated employees is going to be huge.  Its a slam dunk for anyone suing them for damn near anything right now. 

The headline that Stu..pid is going to give up one years pay is not helping them one bit in the climate prevalent in the US right now.  Just the fact he was to be paid 41 million being on front pages is fueling everyones anger right now.  This type of greed is why so many people are backing Trump and earlier Sanders.  These are not votes for Trump, they are a great big f-u to the establishment.

This is so much more noxious than the Whale episode.  The Whale episode was confined.  This situation has spiraled out of control. 

Title: Re: WFC - Wells Fargo
Post by: Schwab711 on September 29, 2016, 08:06:58 PM
Quote
Anyone here who thinks they dont eat one or two years earnings over this is naive. 

That's $20b-$40b. Just a bit dramatic, no? Respectfully, I think you have listened to too much 'noise'.
Title: Re: WFC - Wells Fargo
Post by: undervalued on September 29, 2016, 09:37:04 PM
I'm definitely selling my Wells stock and looking to buy more

Are you selling or are you buying?
Title: Re: WFC - Wells Fargo
Post by: rb on September 29, 2016, 10:44:07 PM
I'm definitely selling my Wells stock and looking to buy more

Are you selling or are you buying?
I apologize, typo, I meant to say that I'm not selling my Wells stock and looking to buy more.
Title: Re: WFC - Wells Fargo
Post by: ScottHall on September 30, 2016, 03:39:48 AM
I like the fact that they have bragged for years about how great they are at cross selling products, and now it turns out they've been playing games. Who wants to bet there are more shoes to drop? Probably! Is the stock cheap? Based on the numbers, I'd say so. I still own my warrants.

The thing is with these things is you never know when the next shoe may drop, and how big of a deal that will be. I remember back with Ocwen; trading at a discount to runoff value. And one settlement basically ruined it.

Ocwen and Wells are different; Ocwen was always an unwinding asset whereas Wells does seem capable of growing organically. I don't think a bank this size can be built entirely on fraud. It's a SIFI. So what is the real damage going to be? For a company that can keep earning good returns on its capital while this unfolds, it's probably not so bad. That said, the price today is not super exciting to me. I like it. It'd probably be a market-beater if there was no scandal.

It may still be a market beater, it's just not the sort of return I expect for a scandal-clad entity. The valuation is compelling but not slobberingly so. Maybe a lot of people have similar opinions to me; probably more to come, but probably not the end of the world. Otherwise I think the stock would be down a lot more.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 30, 2016, 04:02:10 AM
Quote
Anyone here who thinks they dont eat one or two years earnings over this is naive. 

That's $20b-$40b. Just a bit dramatic, no? Respectfully, I think you have listened to too much 'noise'.

Looking at the Whale and the 100 B paid out by BAC, 20 B by the end doesn't seem outlandish to me.  The Whale was egg on the face from an isolated event.  The two situations so far at Wells are much broader and have targeted the little guy, and there will may be more coming. 

I wouldn't buy more this stock right now.  Maybe later, but not now.  But As you say Schwab, I could be wrong. 

In addition to the fallout:
- just because Buffett owns this stock today doesnt mean its good value today
- banking is becoming tighter and tighter regulated with no end in sight and this event wont help
- interest rate compression is here for awhile and may get worse.
-to my knowledge Buffett wasn't buying - he needed the permission to go above 10% due to a shrinking overall share count
- Sometime sooner or later the US goes into recession.  My guess is by Shortly after the election. 
- Wells knows this is bad.  No other CEO of Stumpf's stature has given back his pay. 

Flame away all you want but dont buy the stock at 45.  The Whale presented a great opportunity to arbitrage because it was isolated and JPMs business was unaffected.  The Wells situation is already affecting its business. 





Title: Re: WFC - Wells Fargo
Post by: Spekulatius on September 30, 2016, 04:14:54 AM
I like the fact that they have bragged for years about how great they are at cross selling products, and now it turns out they've been playing games. Who wants to bet there are more shoes to drop? Probably! Is the stock cheap? Based on the numbers, I'd say so. I still own my warrants.

The thing is with these things is you never know when the next shoe may drop, and how big of a deal that will be. I remember back with Ocwen; trading at a discount to runoff value. And one settlement basically ruined it.

Ocwen and Wells are different; Ocwen was always an unwinding asset whereas Wells does seem capable of growing organically. I don't think a bank this size can be built entirely on fraud. It's a SIFI. So what is the real damage going to be? For a company that can keep earning good returns on its capital while this unfolds, it's probably not so bad. That said, the price today is not super exciting to me. I like it. It'd probably be a market-beater if there was no scandal.

It may still be a market beater, it's just not the sort of return I expect for a scandal-clad entity. The valuation is compelling but not slobberingly so. Maybe a lot of people have similar opinions to me; probably more to come, but probably not the end of the world. Otherwise I think the stock would be down a lot more.

I agree - A PE of 10x (roughly) for a now tainted bank is not a great entry. I do think there will be more shoes to drop, when the investigations and subpoenas begin to stir up dirt. For me, a decent entry would be in the mid 30's.
JPM traded close to tangible book, when he London whale incident occured. This issue with WFC is smaller in monetary terms, but larger in reputation as terms, as it affects far mor customers.

I am WFC customer and while they never opened an account for me (I hope), it was clear that they were pushing a lot unwanted products ( insurance, CC, savings accounts that didn't yield anything) to their customers. I declined them all, but it was quite annoying. LT damage to the reputation should not be underestimated. New customers will be harder to win and existing customers that are pissed off for another reason and are on her fence will be more likely to leave. Control systems will have to be implemented I avoid these issues going forward, which will be expensive as well. In addition, WFC will have to switch to a softer sell approach, which may cost them some revenue as well.
Title: Re: WFC - Wells Fargo
Post by: TheAiGuy on September 30, 2016, 05:46:21 AM
You know, I added a little at $45 a week or so ago and then thought better of it a couple days later and sold what I bought for roughly the same.

The price here is fine, but the game - looking for an entry point after a scandal on a stable, borring, easy to value stock - is terrible.
Title: Re: WFC - Wells Fargo
Post by: DCG on September 30, 2016, 06:02:13 AM
Shortly before this whole scandal broke, Barron's published this article which put their earnings in question:


http://www.barrons.com/articles/how-wells-fargo-dresses-up-its-earnings-1469857609 (http://www.barrons.com/articles/how-wells-fargo-dresses-up-its-earnings-1469857609)


It seems like their leadership, which was often regarded as the best in the industry, is actually pretty shady.


Also, this:


Wells Fargo [/size](WFC (http://finance.yahoo.com/q?s=wfc))[/size][/size] — Wells Fargo continues on our watch list after CEO John Stumpf faced four hours of grilling from a House of Representatives panel Thursday over the bank's sales practices scandal. CNBC has learned that Warren Buffett – whose Berkshire Hathaway[/color][/size](BRK-A (http://finance.yahoo.com/q?s=brk-a))[/size][/size] is a major Wells Fargo shareholder – spoke with Stumpf about these issues but has not spoken with any other board members. Buffett told the CEO that the problem was bigger than Stumpf had thought and that he felt Stumpf's interview with CNBC's Jim Cramer did not go well.[/color][/b]
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on September 30, 2016, 06:36:55 AM
Quote
Anyone here who thinks they dont eat one or two years earnings over this is naive. 

That's $20b-$40b. Just a bit dramatic, no? Respectfully, I think you have listened to too much 'noise'.

Looking at the Whale and the 100 B paid out by BAC, 20 B by the end doesn't seem outlandish to me.  The Whale was egg on the face from an isolated event.  The two situations so far at Wells are much broader and have targeted the little guy, and there will may be more coming. 

I wouldn't buy more this stock right now.  Maybe later, but not now.  But As you say Schwab, I could be wrong. 

In addition to the fallout:
- just because Buffett owns this stock today doesnt mean its good value today
- banking is becoming tighter and tighter regulated with no end in sight and this event wont help
- interest rate compression is here for awhile and may get worse.
-to my knowledge Buffett wasn't buying - he needed the permission to go above 10% due to a shrinking overall share count
- Sometime sooner or later the US goes into recession.  My guess is by Shortly after the election. 
- Wells knows this is bad.  No other CEO of Stumpf's stature has given back his pay. 

Flame away all you want but dont buy the stock at 45.  The Whale presented a great opportunity to arbitrage because it was isolated and JPMs business was unaffected.  The Wells situation is already affecting its business.


Al,

I don't think that anyone is flaming you.  If we are, please send us a PM...if I personally ever get too intensely involved in a discussion, a quick PM is appreciated to let me know to dial it back.  Rather, I would say that most of us are trying to figure out what economic impact this event might have on WFC and whether its value will be impaired on a long-term basis or whether this is a minor event after which WFC returns to being a best of class bank.  If it's the former, then you are probably right when recommending that people look for a share price entry point in the $30s.  If the damage is minor, then the current price probably represents an attractive entry point (ie, buy a best in class bank for 10X).

So far Mr. Market has given WFC's market cap a haircut of about $30B over the past month.  So, is Mr. Market correct that the long-term economic damage to WFC will be $30B.  Certainly that's not too far from your back-of-envelope estimate of a year of EPS.  However I think that's maybe a bit pessimistic.  So, let's sum up the potential losses, understanding that we probably won't be comprehensive (ie, there'll be new lawsuits come out of the wood work) :

Fines: $200m (these have already been announced)
Employee class action lawsuit: $7,200m (this has already been announced)
Client Arbitration: $200m (this assumes that WFC needs to return service charges to 200k clients and it costs $1k each to pay/administer)
Client class action: $1B (probably cannot even get a class certified, but this is for 1m clients who paid $1k each in higher interest due to worsened credit scores)
Lost government business: $300m (assumes a few more states/municipalities follow California's lead and suspend business for a year)
Lost clients: nil (assumes that virtually no clients will walk, and those who walk are not high profit clients)


So, off the top of my head, I can envision perhaps $9B of direct costs, plus reputation damage, plus the requirement for excessive management conservatism on a going-forward basis.  And, even the $9B of direct costs assumes that classes can be certified, that the complainants will win in court, that WFC will not win any appeals, and that the settlement will remain undiscounted (ie, if that $7.2B settlement isn't paid until 2027 after the trial and after 12 different appeals, then the discounted value is much smaller).

Does the potential $9B in pre-tax direct costs plus the indirect costs justify a $30B haircut to market cap?  Or are there other items to add to the list of potential economic impacts?


SJ
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on September 30, 2016, 06:40:44 AM
Shortly before this whole scandal broke, Barron's published this article which put their earnings in question:

One counterpoint: they have about $1B per year in non-cash, non-economic amortization of "core deposits" that ends in 2018. I don't think that is factored into Barron's analysis.
Title: Re: WFC - Wells Fargo
Post by: DCG on September 30, 2016, 06:56:07 AM
Shortly before this whole scandal broke, Barron's published this article which put their earnings in question:

One counterpoint: they have about $1B per year in non-cash, non-economic amortization of "core deposits" that ends in 2018. I don't think that is factored into Barron's analysis.


Selling assets just to meet Wall Street's EPS target is the main thing that stands out to me though.
Title: Re: WFC - Wells Fargo
Post by: Uccmal on September 30, 2016, 08:35:01 AM
Quote
Anyone here who thinks they dont eat one or two years earnings over this is naive. 

That's $20b-$40b. Just a bit dramatic, no? Respectfully, I think you have listened to too much 'noise'.

Looking at the Whale and the 100 B paid out by BAC, 20 B by the end doesn't seem outlandish to me.  The Whale was egg on the face from an isolated event.  The two situations so far at Wells are much broader and have targeted the little guy, and there will may be more coming. 

I wouldn't buy more this stock right now.  Maybe later, but not now.  But As you say Schwab, I could be wrong. 

In addition to the fallout:
- just because Buffett owns this stock today doesnt mean its good value today
- banking is becoming tighter and tighter regulated with no end in sight and this event wont help
- interest rate compression is here for awhile and may get worse.
-to my knowledge Buffett wasn't buying - he needed the permission to go above 10% due to a shrinking overall share count
- Sometime sooner or later the US goes into recession.  My guess is by Shortly after the election. 
- Wells knows this is bad.  No other CEO of Stumpf's stature has given back his pay. 

Flame away all you want but dont buy the stock at 45.  The Whale presented a great opportunity to arbitrage because it was isolated and JPMs business was unaffected.  The Wells situation is already affecting its business.


Al,

I don't think that anyone is flaming you.  If we are, please send us a PM...if I personally ever get too intensely involved in a discussion, a quick PM is appreciated to let me know to dial it back.  Rather, I would say that most of us are trying to figure out what economic impact this event might have on WFC and whether its value will be impaired on a long-term basis or whether this is a minor event after which WFC returns to being a best of class bank.  If it's the former, then you are probably right when recommending that people look for a share price entry point in the $30s.  If the damage is minor, then the current price probably represents an attractive entry point (ie, buy a best in class bank for 10X).

So far Mr. Market has given WFC's market cap a haircut of about $30B over the past month.  So, is Mr. Market correct that the long-term economic damage to WFC will be $30B.  Certainly that's not too far from your back-of-envelope estimate of a year of EPS.  However I think that's maybe a bit pessimistic.  So, let's sum up the potential losses, understanding that we probably won't be comprehensive (ie, there'll be new lawsuits come out of the wood work) :

Fines: $200m (these have already been announced)
Employee class action lawsuit: $7,200m (this has already been announced)
Client Arbitration: $200m (this assumes that WFC needs to return service charges to 200k clients and it costs $1k each to pay/administer)
Client class action: $1B (probably cannot even get a class certified, but this is for 1m clients who paid $1k each in higher interest due to worsened credit scores)
Lost government business: $300m (assumes a few more states/municipalities follow California's lead and suspend business for a year)
Lost clients: nil (assumes that virtually no clients will walk, and those who walk are not high profit clients)


So, off the top of my head, I can envision perhaps $9B of direct costs, plus reputation damage, plus the requirement for excessive management conservatism on a going-forward basis.  And, even the $9B of direct costs assumes that classes can be certified, that the complainants will win in court, that WFC will not win any appeals, and that the settlement will remain undiscounted (ie, if that $7.2B settlement isn't paid until 2027 after the trial and after 12 different appeals, then the discounted value is much smaller).

Does the potential $9B in pre-tax direct costs plus the indirect costs justify a $30B haircut to market cap?  Or are there other items to add to the list of potential economic impacts?


SJ

Stubble, I wasn't really serious about the flaming, and I really respect your views.   I just think there may be much better entry points going forward. 

A minor recession would likely take all the big banks down.  Whether I would even buy WFC at any price is another matter, and nothing to do with the scandal(s).  It has more to with BAC, WFC, JPM, et al, being regulated utilities in an unprotected market.  This differs markedly from the Canadian banks which are regulated within an Oligopoly.  In a recession such as the one last fall/winter in Canada I would buy Cdn, and did buy some Rbc. 

I am very careful to cap my holdings in the financial sector in general though.  I sort of learned this with BAC.  The initial bounce back was where all the money was made.  I kept on keeping on with it for 3 more years and began to see the writing on the wall.  The government has turned these companies into utilities, and pretty much dictates their behaviour.  That, and the persistent low interest rate environment has forced them to get creative, with unfortunate results. 

Going back in the BAC threads on this board sort of illustrates what I am talking about.  We (including me) had estimates of $2-$3 per share earnings by now, and a stock price in the mid $20s at some point.  This was predicated on getting their problems behind them (which they did), and much higher interest rates by now.  It has become clear that low interest rates will last for a while yet, perhaps for our lifetimes, making it harder for these huge banks to grow earnings, or even keep them from dropping.  With the government leash (right or wrong) on for the foreseeable future you have another handicap. 

Summary: Downside significant; upside limited. 


Title: Re: WFC - Wells Fargo
Post by: rb on September 30, 2016, 09:49:36 AM
Al,

I happen to have almost the opposite view regarding US/Canadian banking situation. While the Canadian banking oligopoly has been good for banks' profitability you effectively have a banking oligopoly in the US right now with WFC, BAC, JPM, and C.

A lot has been made about the regulation of US banks and making them more utility like. I actually kinda like that. Banks have been utility like in the past and their shareholders have done very well. A lot of the stuff that was regulated away wasn't really that good for shareholders in the end. Though it was good for banker bonuses. It's true that the new regulations have reduced ROEs for US banks but the multiples are also lower and it compensates for that. The returns thus shouldn't be impacted that much. So you have a lower risk situation for similar returns. It's more boring but I'm ok with that. I don't like too much excitement in my holdings.

The economics are different now. The Canadian consumer is way overlevered, the US consumer has been delevering for 8 years now. The home ownership rate in Canada is at record high while the home ownership rate in the US is at 50 year low. US is more likely to raise rates rather than cut, the opposite is true in Canada. It looks to me that in terms of loan growth Canadian banks are running out of runway while in the US you a spring that gets coiled up and when it gets released you'll get some decent growth. I'm ok with a decent dividend while I wait.

My last point is more of a feel, but I think that the balance sheets in the US have been mostly cleaned up while I read a lot about mortgage fraud in Canada so I don't feel 100% confident about those balance sheets.
Title: Re: WFC - Wells Fargo
Post by: SmallCap on September 30, 2016, 12:46:26 PM
Hmm, If I stole (repossessed) your car, I would likely spend time in prison but Wells Fargo is allowed to give them back their car and 10K as punishment. I wonder how many unincorporated car thieves would take that kind of a system.

Brings an interesting question of how corporations are held accountable for breaking the law. Should a person be held accountable for what the company did or what they did while following orders by the corporation. Is the corporation paying a fine enough of a deterrent for them committing a crime?

http://money.cnn.com/2016/09/29/news/wells-fargo-servicemembers-cars/index.html
Title: Re: WFC - Wells Fargo
Post by: Mephistopheles on September 30, 2016, 07:55:18 PM
Illionis suspends WFC from muni business and "investment work"

http://www.bloomberg.com/news/articles/2016-09-30/illinois-to-suspend-wells-fargo-from-bond-investing-work
Title: Re: WFC - Wells Fargo
Post by: Grenville on September 30, 2016, 11:33:42 PM
This exchange from the Financial Services Hearing makes me wonder what Stumpf does all day. He literally doesn't know how things are run at WFC. It's almost like they need to put him on Undercover Boss.

https://youtu.be/EtI47VHkehM?t=2h40m28s (https://youtu.be/EtI47VHkehM?t=2h40m28s)

Stumpf rebuttal during this whole crisis is that 99% of WFC people do the right thing and that they follow the culture and values. If you listen to his testimony when they ask him how things work, he doesn't know. So how would he know if they follow the cultures and values, I guess someone told him they do. His answers are: "It's run by that division, I don't know but I can get back to you…I will get our people on it…" Then when it comes to his role as CEO/Chairman, he's answers "its a board process or handled by that committee regarding clawbacks…" He doesn't own anything and isn't responsible for anything directly.

I know this a political event before elections, but some of the congressmen/women are asking real questions.

If he doesn't get canned fast and the CEO/Chairman role split, things are not going to get fixed. The board seems to be clueless so far. Where is the activist?

I look forward to hearing from Buffett and Munger on Stumpf's performance and what needs to be done.
Title: Re: WFC - Wells Fargo
Post by: Foreign Tuffett on October 01, 2016, 12:14:34 AM
This exchange from the Financial Services Hearing makes me wonder what Stumpf does all day. He literally doesn't know how things are run at WFC. It's almost like they need to put him on Undercover Boss.

Thanks for the link. He does seem somewhat clueless about how the retail branches were run. Keep in mind though, that he is likely intentionally playing dumb so as to ensure that he doesn't inadvertently implicate himself.
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on October 01, 2016, 12:46:25 AM
(http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/09/28/20160929_wells1.jpg)
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on October 01, 2016, 01:55:38 AM
I wouldn't buy more this stock right now.  Maybe later, but not now.  But As you say Schwab, I could be wrong. 

In addition to the fallout:
- just because Buffett owns this stock today doesnt mean its good value today
- banking is becoming tighter and tighter regulated with no end in sight and this event wont help
- interest rate compression is here for awhile and may get worse.
-to my knowledge Buffett wasn't buying - he needed the permission to go above 10% due to a shrinking overall share count
- Sometime sooner or later the US goes into recession.  My guess is by Shortly after the election. 
- Wells knows this is bad.  No other CEO of Stumpf's stature has given back his pay. 
I disagree. I think if you're buying today for $44, then you've got a 95% chance of out-performing the market in the next 3 years.

My comments to your points (in bold).

- just because Buffett owns this stock today doesnt mean its good value today - you don't need Buffett to see this is value. You're buying at 11x earnings, there is moderate growth, book value/ROE growing at 11-12% a year, share buy backs. It's value in plain sight.
- banking is becoming tighter and tighter regulated with no end in sight and this event wont help - WFC already meet tight Basel 3 regulations. We are already in the most prudent regulatory environment for decades, I don't see further tightening.
- interest rate compression is here for awhile and may get worse. - We've already passed the bottom of the rate cycle, we're only going up from here.
-to my knowledge Buffett wasn't buying - he needed the permission to go above 10% due to a shrinking overall share count - he's not selling either!
- Sometime sooner or later the US goes into recession.  My guess is by Shortly after the election. - noise
- Wells knows this is bad.  No other CEO of Stumpf's stature has given back his pay.  - Warren is pissed, I have do doubt about that. But if Wells' transgressions had been that bad, then Stumpf would have been fired by now. He hasn't, only been given a slap on the wrist, this is important.

If it wasn't for the fact that the banking industry is despised right about now, Wells would be trading at about $60, yet here we are with a share price that is down 25% of that value. As I've looked at Wells closer in the last week (it's always been too expensive for me), I realise I have to take back the comment I said a few pages back where I wanted to buy cheaper. Whether I buy it at $44 or $40, it's still cheap. Conservatively speaking, at $44 today, I cannot see anything less than a 15% annual return over the next 5 years, that's doubling your money over that time period. The best thing about it is that you can let Uncle Warren do all the work. Like a Coca-Cola or an American Express, Uncle Warren just isn't allowed walk away from this one, he simply has to get it back on track.

Uccmal, let me put it to you this way. Would you be prepared to take a $100 bet to the charity of the winners choice that Wells doesn't provide a 100% return from today's price? I think you'd be nuts to take that bet and if you think so too, then why aren't you buying WFC now?
Title: Re: WFC - Wells Fargo
Post by: muscleman on October 01, 2016, 11:47:49 AM
I wouldn't buy more this stock right now.  Maybe later, but not now.  But As you say Schwab, I could be wrong. 

In addition to the fallout:
- just because Buffett owns this stock today doesnt mean its good value today
- banking is becoming tighter and tighter regulated with no end in sight and this event wont help
- interest rate compression is here for awhile and may get worse.
-to my knowledge Buffett wasn't buying - he needed the permission to go above 10% due to a shrinking overall share count
- Sometime sooner or later the US goes into recession.  My guess is by Shortly after the election. 
- Wells knows this is bad.  No other CEO of Stumpf's stature has given back his pay. 
I disagree. I think if you're buying today for $44, then you've got a 95% chance of out-performing the market in the next 3 years.

My comments to your points (in bold).

- just because Buffett owns this stock today doesnt mean its good value today - you don't need Buffett to see this is value. You're buying at 11x earnings, there is moderate growth, book value/ROE growing at 11-12% a year, share buy backs. It's value in plain sight.
- banking is becoming tighter and tighter regulated with no end in sight and this event wont help - WFC already meet tight Basel 3 regulations. We are already in the most prudent regulatory environment for decades, I don't see further tightening.
- interest rate compression is here for awhile and may get worse. - We've already passed the bottom of the rate cycle, we're only going up from here.
-to my knowledge Buffett wasn't buying - he needed the permission to go above 10% due to a shrinking overall share count - he's not selling either!
- Sometime sooner or later the US goes into recession.  My guess is by Shortly after the election. - noise
- Wells knows this is bad.  No other CEO of Stumpf's stature has given back his pay.  - Warren is pissed, I have do doubt about that. But if Wells' transgressions had been that bad, then Stumpf would have been fired by now. He hasn't, only been given a slap on the wrist, this is important.

If it wasn't for the fact that the banking industry is despised right about now, Wells would be trading at about $60, yet here we are with a share price that is down 25% of that value. As I've looked at Wells closer in the last week (it's always been too expensive for me), I realise I have to take back the comment I said a few pages back where I wanted to buy cheaper. Whether I buy it at $44 or $40, it's still cheap. Conservatively speaking, at $44 today, I cannot see anything less than a 15% annual return over the next 5 years, that's doubling your money over that time period. The best thing about it is that you can let Uncle Warren do all the work. Like a Coca-Cola or an American Express, Uncle Warren just isn't allowed walk away from this one, he simply has to get it back on track.

Uccmal, let me put it to you this way. Would you be prepared to take a $100 bet to the charity of the winners choice that Wells doesn't provide a 100% return from today's price? I think you'd be nuts to take that bet and if you think so too, then why aren't you buying WFC now?

California and Illinois banned WFC from muni bond issuance. Reminds me of Solomon brothers being banned from its treasury bidding. Of course the scale is not that big.
What else could happen here? I want to find out the worst case scenario.




Title: Re: WFC - Wells Fargo
Post by: rb on October 01, 2016, 01:09:40 PM
The worst case scenario would be if the government decides to make an example out of Wells and unleashes DOJ on them. They you're looking at Billion level fines and huge legal fees. I don't think it'll come to that.
Title: Re: WFC - Wells Fargo
Post by: Mephistopheles on October 01, 2016, 01:44:01 PM
Last year, WFC's total noninterest income from both equity and debt underwriting fees was $1.6 billion. This doesn't include expenses and does includes both corporate and municipality. With a total net income upwards of $20 billion, wiping out the entire muni business is not a big deal.

I do think we will see a DOJ investigation and other lawsuits (few which have already been filed), and it may be several billion in settlements, but nothing close to BAC or JPM crisis era settlements. Really, how much harm was done here?? Life will go on and WFC will continue to be a quality bank.
Title: Re: WFC - Wells Fargo
Post by: wellmont on October 01, 2016, 01:50:08 PM
this post explains why wfc is extremely cheap right now (if you think earings won't be hit much at all by this as I do). by my measure wfc is trading at north of 15% pre tax earnings yield on a Trailing basis. that yield on your cost basis is only going to grow.

http://brooklyninvestor.blogspot.com/2013/07/13-and-15-pretax-returns-now.html
Title: Re: WFC - Wells Fargo
Post by: wellmont on October 01, 2016, 02:14:20 PM
this extremely worrisome and bearish article (the kind the ms financial media is known for) was written a few weeks before the bottom in jpm stock during london whale scandal. the stock has doubled since the article was published in a bit more than 4 years.

http://www.reuters.com/article/us-jpmorgan-risk-idUSBRE84H15120120518
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on October 01, 2016, 02:25:31 PM
this post explains why wfc is extremely cheap right now (if you think earings won't be hit much at all by this as I do). by my measure wfc is trading at north of 15% pre tax earnings yield on a Trailing basis. that yield on your cost basis is only going to grow.

http://brooklyninvestor.blogspot.com/2013/07/13-and-15-pretax-returns-now.html

A lot of banks trade at 15% pretax earnings yield, which means a PE of 10-11. BAC, GS etc. I don't think that this is cheap given that WFC got a bit "smelly" and we are so far in the bull market. Rising interest rates could help, but then on the other side, provision for credit etc are very low and normalized will go higher - probably much higher in a recession.
Title: Re: WFC - Wells Fargo
Post by: muscleman on October 01, 2016, 07:53:39 PM
this post explains why wfc is extremely cheap right now (if you think earings won't be hit much at all by this as I do). by my measure wfc is trading at north of 15% pre tax earnings yield on a Trailing basis. that yield on your cost basis is only going to grow.

http://brooklyninvestor.blogspot.com/2013/07/13-and-15-pretax-returns-now.html

Why care about pre tax earnings instead of after tax earnings?
Title: Re: WFC - Wells Fargo
Post by: rb on October 02, 2016, 10:16:42 AM
PE does it's stuff pre tax because they're more interested in operating cash flow that can be used to service debt. Also taxes aren't that big an issue for PE because the interest expense on the large debt loads eliminate a large part of tax liability.
Title: Re: WFC - Wells Fargo
Post by: muscleman on October 02, 2016, 10:25:21 AM
this extremely worrisome and bearish article (the kind the ms financial media is known for) was written a few weeks before the bottom in jpm stock during london whale scandal. the stock has doubled since the article was published in a bit more than 4 years.

http://www.reuters.com/article/us-jpmorgan-risk-idUSBRE84H15120120518

The stock price increase was far more than the EPS increase.
JPM was 7x PE in 2012. That's a no brainer at that time.
WFC at 11x PE isn't such a no brainer.

Buffet loves WFC at 10x pretax PE because Berkshire is so big now and there is no other great ways of making money.
He used to be buying 2x PEs when he first started and he was making 29% a year after fees for the first ten years.





Title: Re: WFC - Wells Fargo
Post by: John Hjorth on October 02, 2016, 10:45:55 AM
BRK's position in WFC is financed using - about free, so-so - insurance float. That's a no brainer.
Title: Re: WFC - Wells Fargo
Post by: cmlber on October 02, 2016, 10:52:03 AM
The stock price increase was far more than the EPS increase.
JPM was 7x PE in 2012. That's a no brainer at that time.
WFC at 11x PE isn't such a no brainer.

Buffet loves WFC at 10x pretax PE because Berkshire is so big now and there is no other great ways of making money.
He used to be buying 2x PEs when he first started and he was making 29% a year after fees for the first ten years.

Let's say earnings will be an even $21 billion in 2016, and let's say deposits grow by 6%/year (lower than the 7.5% CAGR over the last 5 years).

Let's say they can invest those deposits at current 2.95% NIM.

Let's say they need to retain 10% of deposits as equity consistent with their tier 1 target.

Let's say they utilize 100% of distributable free cash flow (earnings less 10% of growth in deposits) to buy back stock and let's assume the stock price increases by 15%/year from $45/share (i.e. all buybacks in 2017 are at $52/share, all buybacks in 2018 are at $60/share, etc.).

Let's assume non-interest revenue growth offsets expense growth.

Under those assumptions, WFC is earning $7/share in 2020 with no increase in interest rates.

Put any reasonable multiple on that and you get a stock price well above todays.

If rates are rising by 2020, you'll get higher earnings ($8/share if NIM just gets a little closer to 2013 levels) and likely a much higher multiple. 
Title: Re: WFC - Wells Fargo
Post by: wellmont on October 02, 2016, 11:40:12 AM
not everybody is looking for the next "zinc" or bellatrix for every stock they buy. I am certainly not. some people are quite happy with a safe 10% or better annual, return. some people are content to get a growing 3.4% current yield when spy yields less, and quality bonds yield less. and those bond yields will never grow.

banks were much cheaper in 2012. so were most stocks. the world was different then. but how many here bought jpm in low $30s? it is never very obvious in real time going through the crisis, as the Reuters article points out. the consensus view was that jpm would have to alter their business model, and would not be able to earn as much as before. that was wrong. and it sounds very familiar to what the media is saying today. the reason wfc is not trading at 7x is because not even the bears think this crisis will hurt the company as bad as london whale hurt jpm. the market does not believe there will be any significant impairment. and wfc has already endured two clown show congressional meetings. that is behind wfc.

i don't believe buffett loves wfc at 10x pre tax. from my reading the post said he is "comfortable" buying it there if he has available funds, and nothing else appeals to him. the post suggests that buffett would buy wfc at 10x pti before he would buy another company at 10x pti. he uses wfc as a yardstick. that tells you something about how he feels about the durability of the wfc franchise.

btw wfc would be trading at $300b+ market cap if it traded at 10x, which is a far cry from the $225b where we are today. wfc rarely ever gets this cheap. this is not your "standard issue" bank. the only way you can buy this stock this cheap is if it is under a cloud. in this case, one that will be forgotten sooner than we expect imo. the current sequioa fund letter, where they announce their purchase of wfc for the fund, has a very good summary of why wells fargo is a special business. not a special bank. a special business.

Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on October 02, 2016, 03:50:10 PM
Let's say earnings will be an even $21 billion in 2016, and let's say deposits grow by 6%/year (lower than the 7.5% CAGR over the last 5 years).

Let's say they can invest those deposits at current 2.95% NIM.

Let's say they need to retain 10% of deposits as equity consistent with their tier 1 target.

Let's say they utilize 100% of distributable free cash flow (earnings less 10% of growth in deposits) to buy back stock and let's assume the stock price increases by 15%/year from $45/share (i.e. all buybacks in 2017 are at $52/share, all buybacks in 2018 are at $60/share, etc.).

Let's assume non-interest revenue growth offsets expense growth.

Under those assumptions, WFC is earning $7/share in 2020 with no increase in interest rates.

Put any reasonable multiple on that and you get a stock price well above todays.

If rates are rising by 2020, you'll get higher earnings ($8/share if NIM just gets a little closer to 2013 levels) and likely a much higher multiple.
These are almost exactly the same numbers that I came up with in my base case thesis. The numbers are not so much value in plain sight, more like value in plain sight that was come up to you and tried to repeatedly beat you in the head with a hammer. With the Schiller PE ratio at 25, can someone please point me in the direction of something else in that index that you could be confident that it can out-perform WFC in the next 5 years?
Title: Re: WFC - Wells Fargo
Post by: dyow on October 02, 2016, 07:24:01 PM
Let's say earnings will be an even $21 billion in 2016, and let's say deposits grow by 6%/year (lower than the 7.5% CAGR over the last 5 years).

Let's say they can invest those deposits at current 2.95% NIM.

Let's say they need to retain 10% of deposits as equity consistent with their tier 1 target.

Let's say they utilize 100% of distributable free cash flow (earnings less 10% of growth in deposits) to buy back stock and let's assume the stock price increases by 15%/year from $45/share (i.e. all buybacks in 2017 are at $52/share, all buybacks in 2018 are at $60/share, etc.).

Let's assume non-interest revenue growth offsets expense growth.

Under those assumptions, WFC is earning $7/share in 2020 with no increase in interest rates.

Put any reasonable multiple on that and you get a stock price well above todays.

If rates are rising by 2020, you'll get higher earnings ($8/share if NIM just gets a little closer to 2013 levels) and likely a much higher multiple.
These are almost exactly the same numbers that I came up with in my base case thesis. The numbers are not so much value in plain sight, more like value in plain sight that was come up to you and tried to repeatedly beat you in the head with a hammer. With the Schiller PE ratio at 25, can someone please point me in the direction of something else in that index that you could be confident that it can out-perform WFC in the next 5 years?

i am gonna poop on this party. I don't think this is a value play unless it hits the $30s. 

-The deposit growth is misleading bc some of it is sticky some is not.  But more importantly they won't earn 2.95% on new deposits, the last time i checked they had over 250B of liquidity earning nothing.  They can't find enough loans to keep up with deposit growth and they are not willing to invest in treasuries (or other assets) bc of interest rate risk from a sudden rise in interest rates. Also they need excess liquidity bc of the FED's leverage ratio rules.

If you don't believe me check the last few years of earnings - deposits exploded but their net interest income has not moved much. 

- Also the deposits do not count towards their 10-11% cap ratio, that depends on common equity/retained earnings and their risk weighted assets.  Recently the Tarullo (the guy from the FED who oversees bank regulations) is talking about increasing the buffer, which means more future earnings would need to kept for capital.  Tarullo is borderline nuts and his only goal in life is to make sure banks hold more capital, and not make money or pay dividends.  This overregulation of capital and limiting dividends to 30% is impacting the PE - and bc of this I think a 11-12 PE on this is reasonable right now.       

My take is this stock is not hitting $60+ unless rates go up.
     
All that said, I like wells, you won't lose much here at these prices if you want to park your excess cash long term and get a 3%+ yield.  All this fake account stuff will pass, and if rates rise or inflation surprises nobody will give a shit about this and the stock will go higher, which also makes it a decent hedge in this market.
Title: Re: WFC - Wells Fargo
Post by: JBTC on October 02, 2016, 08:26:55 PM

the current sequioa fund letter, where they announce their purchase of wfc for the fund, has a very good summary of why wells fargo is a special business. not a special bank. a special business.

Would you mind quoting why they thought WFC is so special? Thanks.
Title: Re: WFC - Wells Fargo
Post by: wellmont on October 02, 2016, 08:50:14 PM

the current sequioa fund letter, where they announce their purchase of wfc for the fund, has a very good summary of why wells fargo is a special business. not a special bank. a special business.

Would you mind quoting why they thought WFC is so special? Thanks.
the document is on their website.
http://www.sequoiafund.com/RCG%20Letter%207-12.pdf
Title: Re: WFC - Wells Fargo
Post by: BRK7 on October 02, 2016, 09:51:15 PM

the current sequioa fund letter, where they announce their purchase of wfc for the fund, has a very good summary of why wells fargo is a special business. not a special bank. a special business.

Would you mind quoting why they thought WFC is so special? Thanks.
the document is on their website.
http://www.sequoiafund.com/RCG%20Letter%207-12.pdf

After reading their strong endorsement of Wells in the letter, I was a bit a surprised to then read that the portfolio position weighting is only 2% (3% if you include the look-through from BRK).  Possibly they were (are?) still building the position, because they went from 92k shares at 3/31 to 5.2M at 6/30.  It will be interesting to see their 3Q activity. 
Title: Re: WFC - Wells Fargo
Post by: Grenville on October 02, 2016, 11:55:44 PM
A congressman referencing Salomon during the hearing and referring to Buffett's words:

https://youtu.be/EtI47VHkehM?t=4h10m1s (https://youtu.be/EtI47VHkehM?t=4h10m1s)

Stumpf just doesn't understand those words…A clueless nice guy or just trying to act dumb to save his job.

Stumpf apparently has so much free time that he sits on the board of Target and Chevron….The ranking member states that it will be her goal to break up WFC and she's the one that mentions the other boards Stumpf sits on.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on October 03, 2016, 04:13:14 AM
A congressman referencing Salomon during the hearing and referring to Buffett's words:

https://youtu.be/EtI47VHkehM?t=4h10m1s (https://youtu.be/EtI47VHkehM?t=4h10m1s)

Stumpf just doesn't understand those words…A clueless nice guy or just trying to act dumb to save his job.

Stumpf apparently has so much free time that he sits on the board of Target and Chevron….The ranking member states that it will be her goal to break up WFC and she's the one that mentions the other boards Stumpf sits on.

Playing dumb won't save Stumpf's job, but avoids that he implicates himself. I think he knows much much more about how WFC's runs their business than what he admitted during the Congress hearing, he just don't want to present the dirty details on a silver platter.
Title: Re: WFC - Wells Fargo
Post by: cmlber on October 03, 2016, 06:56:59 AM
i am gonna poop on this party. I don't think this is a value play unless it hits the $30s. 

-The deposit growth is misleading bc some of it is sticky some is not.  But more importantly they won't earn 2.95% on new deposits, the last time i checked they had over 250B of liquidity earning nothing.  They can't find enough loans to keep up with deposit growth and they are not willing to invest in treasuries (or other assets) bc of interest rate risk from a sudden rise in interest rates. Also they need excess liquidity bc of the FED's leverage ratio rules.

If you don't believe me check the last few years of earnings - deposits exploded but their net interest income has not moved much. 

They've grown loans by 4%/4%/6% the last three years. 

So bring down the deposit growth assumption from 6% to 4% so we can be confident that they can lend out each new $ of deposits and you get $6.5/share in 2020 without any increase in interest rates using the same assumptions.  What difference does it make whether they earn $6 or $7?  Put any reasonable multiple on it and you're getting a very good return.  If rates rise it'll be a 20%+ compounder for the next 4-5 years.
Title: Re: WFC - Wells Fargo
Post by: JBTC on October 03, 2016, 07:46:41 AM

the current sequioa fund letter, where they announce their purchase of wfc for the fund, has a very good summary of why wells fargo is a special business. not a special bank. a special business.

Would you mind quoting why they thought WFC is so special? Thanks.
the document is on their website.
http://www.sequoiafund.com/RCG%20Letter%207-12.pdf

After reading their strong endorsement of Wells in the letter, I was a bit a surprised to then read that the portfolio position weighting is only 2% (3% if you include the look-through from BRK).  Possibly they were (are?) still building the position, because they went from 92k shares at 3/31 to 5.2M at 6/30.  It will be interesting to see their 3Q activity.

It doesn't seem like their assessment of Wells was any different from the consensus. Not saying it's good or bad, but the reality is until this scandal WFC was just boring.

Another point is even though Sequoia always prides itself on doing extremely thorough research, they apparently failed to detect anything about WFC's problematic cross-selling prior to their initiating a position. Makes one wonder how useful and practical it really is to "kick the tires".
Title: Re: WFC - Wells Fargo
Post by: dyow on October 03, 2016, 09:23:18 AM
i am gonna poop on this party. I don't think this is a value play unless it hits the $30s. 

-The deposit growth is misleading bc some of it is sticky some is not.  But more importantly they won't earn 2.95% on new deposits, the last time i checked they had over 250B of liquidity earning nothing.  They can't find enough loans to keep up with deposit growth and they are not willing to invest in treasuries (or other assets) bc of interest rate risk from a sudden rise in interest rates. Also they need excess liquidity bc of the FED's leverage ratio rules.

If you don't believe me check the last few years of earnings - deposits exploded but their net interest income has not moved much. 

They've grown loans by 4%/4%/6% the last three years. 

So bring down the deposit growth assumption from 6% to 4% so we can be confident that they can lend out each new $ of deposits and you get $6.5/share in 2020 without any increase in interest rates using the same assumptions.  What difference does it make whether they earn $6 or $7?  Put any reasonable multiple on it and you're getting a very good return.  If rates rise it'll be a 20%+ compounder for the next 4-5 years.

Your numbers wrong. Look at past history.

10,643 net interest income in Q4 2012, loans 782B

11,733 net interest income Q2 2016, 950B

loans went up 170B in 3.5 years, about 20% gross.  net interest income went up 1.1B (this incudes all interest income not just loans).  That is 4.4B a year, after tax it is 3B. Per share that is about 60 cents.  So 60 cents a share on all interest income for all their assets in 3.5 years. 

If interest rate stay low you will be lucky to get to $5 a share by 2020. 




 
Title: Re: WFC - Wells Fargo
Post by: Picasso on October 03, 2016, 09:25:30 AM
Quote
Chicago Treasurer Kurt Summers plans to divest $25 million the city has invested with Wells Fargo & Co. after the company admitted to opening potentially millions of bogus client accounts, joining state officials who have pulled business from the bank because of the scandal.

Summers, whose office manages the city’s $7 billion investment portfolio, plans to “unwind these assets as expeditious as possible in a fashion that is prudent and will protect taxpayer money,’’ according to a statement from his office sent to Bloomberg News.

“The City Treasurer is proud to stand with working families from Chicago and across the nation by divesting in Wells Fargo & Co.,’’ according to the e-mailed statement. “Chicago deserves better.’’

This must be such a pain in the ass for employees in non-banking parts of WFC. 
Title: Re: WFC - Wells Fargo
Post by: glorysk87 on October 03, 2016, 11:21:40 AM
not everybody is looking for the next "zinc" or bellatrix for every stock they buy. I am certainly not. some people are quite happy with a safe 10% or better annual, return. some people are content to get a growing 3.4% current yield when spy yields less, and quality bonds yield less. and those bond yields will never grow.

banks were much cheaper in 2012. so were most stocks. the world was different then. but how many here bought jpm in low $30s? it is never very obvious in real time going through the crisis, as the Reuters article points out. the consensus view was that jpm would have to alter their business model, and would not be able to earn as much as before. that was wrong. and it sounds very familiar to what the media is saying today. the reason wfc is not trading at 7x is because not even the bears think this crisis will hurt the company as bad as london whale hurt jpm. the market does not believe there will be any significant impairment. and wfc has already endured two clown show congressional meetings. that is behind wfc.

i don't believe buffett loves wfc at 10x pre tax. from my reading the post said he is "comfortable" buying it there if he has available funds, and nothing else appeals to him. the post suggests that buffett would buy wfc at 10x pti before he would buy another company at 10x pti. he uses wfc as a yardstick. that tells you something about how he feels about the durability of the wfc franchise.

btw wfc would be trading at $300b+ market cap if it traded at 10x, which is a far cry from the $225b where we are today. wfc rarely ever gets this cheap. this is not your "standard issue" bank. the only way you can buy this stock this cheap is if it is under a cloud. in this case, one that will be forgotten sooner than we expect imo. the current sequioa fund letter, where they announce their purchase of wfc for the fund, has a very good summary of why wells fargo is a special business. not a special bank. a special business.

From the letter:  " It leads the industry in the intensity of its customer relationships with over six products per customer"

Haha......eeeeesh.
Title: Re: WFC - Wells Fargo
Post by: plato1976 on October 03, 2016, 11:44:45 AM
Hi, Wellmont:

How can we be sure that the above par profitability of WFC (for example, compared with BAC) is not purely the result of the aggressive sales behavior internally, and if removed its profitability will just be at BAC's level?



the current sequioa fund letter, where they announce their purchase of wfc for the fund, has a very good summary of why wells fargo is a special business. not a special bank. a special business.

Would you mind quoting why they thought WFC is so special? Thanks.
the document is on their website.
http://www.sequoiafund.com/RCG%20Letter%207-12.pdf
Title: Re: WFC - Wells Fargo
Post by: wellmont on October 03, 2016, 12:00:49 PM
Hi, Wellmont:

How can we be sure that the above par profitability of WFC (for example, compared with BAC) is not purely the result of the aggressive sales behavior internally, and if removed its profitability will just be at BAC's level?



the current sequioa fund letter, where they announce their purchase of wfc for the fund, has a very good summary of why wells fargo is a special business. not a special bank. a special business.

Would you mind quoting why they thought WFC is so special? Thanks.
the document is on their website.
http://www.sequoiafund.com/RCG%20Letter%207-12.pdf
I don't think it's knowable right now. it's a risk. it's something we will find out over time. I don't see bac as a static enterprise. I think it's managed better than it ever has been, and metrics will improve.
Title: Re: WFC - Wells Fargo
Post by: tng on October 03, 2016, 01:29:10 PM
Anybody have any reason why I shouldn't just swap my WFC position into another big bank like BAC or JPM? Valuation-wise, WFC is about in line with JPM on a P/E basis. WFC might regain the "premium" status in the future and trade at a higher multiple, but it may also be hit with regulatory and legal problems. We all saw how BAC became a punching bag for years for legacy Countrywide/Merrill issues. With BAC, there was actually a reason for the government to be a little bit more lenient considering BAC was strong-armed into buying Merrill to save the system and strong-armed into not activating the material adverse change clauses.

I do think WFC is cheap and this will probably blow over and everybody will forget about it in a few years. But all the other banks are very cheap too.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on October 03, 2016, 02:03:57 PM
Anybody have any reason why I shouldn't just swap my WFC position into another big bank like BAC or JPM?

I wonder what the returns would be if you rotated between JPM/BAC/WFC every time they were hit with a scandal (post crisis) versus rotating INTO the scandal-plagued bank. I suspect running into the burning fire would be more profitable.

Disclosure: I sold a big chunk of WFC today. Do as I say, not as I do?
Title: Re: WFC - Wells Fargo
Post by: cmlber on October 03, 2016, 04:45:41 PM
i am gonna poop on this party. I don't think this is a value play unless it hits the $30s. 

-The deposit growth is misleading bc some of it is sticky some is not.  But more importantly they won't earn 2.95% on new deposits, the last time i checked they had over 250B of liquidity earning nothing.  They can't find enough loans to keep up with deposit growth and they are not willing to invest in treasuries (or other assets) bc of interest rate risk from a sudden rise in interest rates. Also they need excess liquidity bc of the FED's leverage ratio rules.

If you don't believe me check the last few years of earnings - deposits exploded but their net interest income has not moved much. 

They've grown loans by 4%/4%/6% the last three years. 


Your numbers wrong. Look at past history.

10,643 net interest income in Q4 2012, loans 782B

11,733 net interest income Q2 2016, 950B

loans went up 170B in 3.5 years, about 20% gross.  net interest income went up 1.1B (this incudes all interest income not just loans).  That is 4.4B a year, after tax it is 3B. Per share that is about 60 cents.  So 60 cents a share on all interest income for all their assets in 3.5 years. 

If interest rate stay low you will be lucky to get to $5 a share by 2020. 

You're taking a cursory look in the rearview mirror.  I said loans have grown by 4%+ in recent years.  2011 year end loans outstanding $769 billion.  2015 year end loans outstanding $916 billion.  CAGR is 4.5%.  My number is right. 

Net interest income hasn't grown at that rate in the recent past (which I didn't claim) primarily because rates have come down but also because they've added liquidity, those forces have acted against the deposit/loan growth.  Both are already in the NIM.  If you adjust for the fact that loans as a % of assets are about 8% lower than they were in 2011 and cash held at the fed is about 8% higher than it was in 2011, the NIM without that mix shift in 2015 would have been about 3.3% (vs. 2.95%), or a full 16% lower than in 2011 (3.94%).  That has nothing to do with added liquidity and everything to do with lower interest rates.  Absent lower interest rates, but assuming permanently higher levels of liquidity and lower levels of lending per dollar of assets, net interest income would have grown by a CAGR of 6% since 2011.

Rates aren't likely to go lower, so that headwind is done even if rates don't rise.  On a go forward basis net interest income is likely to grow at around the growth in loans if rates don't change.  If you disagree, that's what makes a market.  We'll see in a few years.
Title: Re: WFC - Wells Fargo
Post by: rb on October 03, 2016, 05:46:35 PM
Anybody have any reason why I shouldn't just swap my WFC position into another big bank like BAC or JPM? Valuation-wise, WFC is about in line with JPM on a P/E basis. WFC might regain the "premium" status in the future and trade at a higher multiple, but it may also be hit with regulatory and legal problems. We all saw how BAC became a punching bag for years for legacy Countrywide/Merrill issues. With BAC, there was actually a reason for the government to be a little bit more lenient considering BAC was strong-armed into buying Merrill to save the system and strong-armed into not activating the material adverse change clauses.

I do think WFC is cheap and this will probably blow over and everybody will forget about it in a few years. But all the other banks are very cheap too.
As others said, it's probably not a good idea to sell low.

Also if you move out of WFC and into BAC and JPM then you also move into massive investment banks with trillion dollar level derivatives books and happy boys doing all kinds of trades with that. That business also isn't that valuable. If you take GS as a comp (arguably the best investment bank) the I-banks are valued at 0.75 P/B at best. So that propositions isn't so enticing.
Title: Re: WFC - Wells Fargo
Post by: dyow on October 03, 2016, 06:47:26 PM
I said your EPS of $6-7 was wrong based on additional interest income.  Forget your NIM, I never talked about NIM.  Why are you throwing out NIM CAGR or exact percentages?    "It is better to be approx right than precisely wrong"....you are beyond precisely wrong, you are "prong" if you will. 

This is your quote from earlier in the thread.

"Let's say they need to retain 10% of deposits as equity consistent with their tier 1 target."

More prong.  Tier 1 capital counts common + retained earnings not deposits. 

I don't think i will change your mind, the worst part is i like wells fargo, but i shall not own this stock as long as you are in it.

Good day to you sir
Title: Re: WFC - Wells Fargo
Post by: racemize on October 03, 2016, 07:53:53 PM
I don't think i will change your mind, the worst part is i like wells fargo, but i shall not own this stock as long as you are in it.

That's pretty amazing that you wouldn't own something that you like just to spite someone else...
Title: Re: WFC - Wells Fargo
Post by: LR1400 on October 03, 2016, 08:00:54 PM
Seriously, can this little blip hurt the strongest bank in the US, if not the world......one supported by multiple billionaire investors.
I feel good, this shit will blow over regardless as to whether the CEO is replaced or not.
Title: Re: WFC - Wells Fargo
Post by: Picasso on October 03, 2016, 08:03:30 PM
dyow is quickly turning into one of my favorite posters on CoBF.  He/she makes a lot of good points underneath the humor.  The humor is just a free call option I didn't have to pay for.
Title: Re: WFC - Wells Fargo
Post by: rb on October 03, 2016, 08:04:51 PM
I don't think i will change your mind, the worst part is i like wells fargo, but i shall not own this stock as long as you are in it.

That's pretty amazing that you wouldn't own something that you like just to spite someone else...
+1 That comment is a here's your sign moment lol.

In all seriousness the lending side of WFC's is weaker compared to the deposit gathering side. That's not so much WFC's fault as much as an effect of household deleveraging. Actually given the conditions out there WFC loan book has a very good performance. In addition to assume that WFC won't be able to deploy those idle deposits is that the future looks more like the past. In my view it's more likely than not that we see more lending in the future.

I've talked previously on the board about my coiled spring theory of US retail banking. Home ownership rate is really low and households are in a much better financial position as they were years ago. At some point you'll have an explosion in lending and WFC will be the primary beneficiary of that. This is not unlike the increase in car sales after the dramatic ageing of US car fleet.
Title: Re: WFC - Wells Fargo
Post by: cmlber on October 03, 2016, 08:32:11 PM
Forget your NIM, I never talked about NIM. 

If you don't believe me check the last few years of earnings - deposits exploded but their net interest income has not moved much

You never talked about NIM?  You made a conclusion that since deposits exploded in the last few years while net interest income didn't, that this must hold true in the future (unless rates rise) without realizing that interest rates fell significantly in the recent past.  That's why I brought up NIM.  If you don't think interest rates will be falling in the future, then what happened to net interest income in the recent past is irrelevant, what matters is what happens in the future.

This is your quote from earlier in the thread.

"Let's say they need to retain 10% of deposits as equity consistent with their tier 1 target."

More prong.  Tier 1 capital counts common + retained earnings not deposits. 

I apologize for less than perfect sentence structure.  Obviously they can't "retain" deposits.  If they could "retain" deposits, what's the alternative?  Distribute them out (all $1.25 trillion of them)?  Damn that would be one hell of a bargain.  Clearly what I meant was "Let's say they need to retain as equity an amount of earnings equal to approximately 10% of the growth in deposits in any given year to maintain a 10% tier 1 leverage ratio."  Is that better for you?

The worst part is i like wells fargo, but i shall not own this stock as long as you are in it.

Very mature. 
Title: Re: WFC - Wells Fargo
Post by: Picasso on October 03, 2016, 08:54:20 PM
Everyone keeps talking about rates going up as a catalyst, but the shape of the yield curve is much more important.  The ECB tried raising rates in 2011 but things didn't go too well.  There's this whole "when rates go up, banks will do well" meme that doesn't seem to hold much water.  Wouldn't shock me if short-term rates went up and the rest of the curve basically stayed where it's at.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on October 04, 2016, 04:12:15 AM
Everyone keeps talking about rates going up as a catalyst, but the shape of the yield curve is much more important.  The ECB tried raising rates in 2011 but things didn't go too well.  There's this whole "when rates go up, banks will do well" meme that doesn't seem to hold much water.  Wouldn't shock me if short-term rates went up and the rest of the curve basically stayed where it's at.

There is also the chance that higher rates will reduce low growth and that some creditors get into trouble and loan provisions need to be made at a normalized rate.
The tide (of falling interest rates) has been rising for a long time, so I am pretty sure that if the tides recedes, there are quite a few folks who find themselves without a bathing suit.

Picasso is correct that the steepness of the interest rate curve is more important than absolute rates. The steepness of the curve has flattened over time (with lower interest rates) and that has hurt banks NIM, but it is not necessarily a given that the steepness increases when nominal short term interest rates rise again.
Title: Re: WFC - Wells Fargo
Post by: Libs on October 07, 2016, 08:58:09 AM
https://www.thestreet.com/story/13841660/1/you-think-wells-fargo-s-bankers-are-bad-take-a-look-at-its-brokers.html?puc=yahoo&cm_ven=YAHOO&yptr=yahoo

More dirt on their branch FA's. My impression of these people is they were under tons of pressure to produce, and churned people through a lot of commission-based products.
Title: Re: WFC - Wells Fargo
Post by: cubsfan on October 07, 2016, 09:05:44 AM
Insightful interview on GF re: Wells ---

http://www.gurufocus.com/news/447656/gurufocus-podcast-episode-2-wells-fargo-scandal--investors-with-bill-smead

I added more.
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on October 07, 2016, 09:28:31 AM
Re: reputation damage

I was on another site and there was a news article about how the CEO of a classified ad type site was being tried for prostitution because prostitutes advertised on the site and his company allowed it to happen.

The first comment was in essence "how is this guy being tried when nothing happens to the CEO of Wells Fargo when his employees commit fraud?"  There were dozens of comments following.  The site is similar to this, but for software developers, so this isn't the comment-first-think-later crowd on some news site.  It's a very intelligent set of people.

There's a danger in this.  If the 'common man' sees that banks can do anything they want regardless of the status of the law and nothing happens, they keep their jobs and keep their bonuses it'll breed outrage and eventually that's going to create a backlash.

Not to derail this thread, but it reminds me of a very rich guy I sat next to at a happy hour at an exclusive club in town here.  After a few drinks he started to discuss income inequality and his concern for it.  He was apparently so concerned that he went back and studied historic income inequality and what the tipping point was.  He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.  He kept going on about how he was worried about his safety and how these hoards of poor people might come after him with pitchforks.  He was talking about how he felt like his luxury car made him a target and how he felt people looked a him differently because he was wealthy.  He wasn't concerned at the society level, but that about himself, and how his wealth could have negative consequences.

When I think about Wells the story seems the same.  If Wells or other big banks can continue to do whatever they like at some point there will be pitchforks.  This wealthy guy was concerned about literal pitchforks.  Maybe something like that happens, or maybe the pitchfork bearing person is someone in Congress, or a regulator, although I doubt a regulator.  Regardless things that can't go on forever won't.  And if you have a business that looks at customers as something to be milked, or at least taken advantage of then I can't imagine that business growing and thriving. 

But maybe I'm wrong in all of this.  My main thesis is that we live in a culture that disapproves of something like this.  But reading the comments I think that's incorrect.  It seems people don't actually care.  And maybe we're in an environment where killing your grandma to get ahead is rewarded because the end justifies the means.  But then again I am a right/wrong type person and maybe I'm just biased by my own view.
Title: Re: WFC - Wells Fargo
Post by: Jurgis on October 07, 2016, 10:34:56 AM
oddball,

I don't think we are at the pitchforks point in re: banks.

I also don't think we are at the pitchforks point re: income inequality, but IMO we are at a point where we should start do things so we don't get to the pitchfork point. At pitchfork point, it is too late to do something. But this is OT on this thread.

I think there is recency bias re: WFC. Or like Kahneman says WYSIATI (what you see is all there is).
So in one sense, this might be a buy point where people expect it only get worse for WFC - but it won't.
OTOH, there is no guarantee that it won't. There is the reflexivity part of WYSIATI, where WYSIATI causes more investigations, more lawsuits, more fines, etc. So it could get worse.

In some sense, both sides are right (in some possible future world). In terms of investing in WFC, people just have to decide on possibilities and probabilities of the different future scenarios.
Title: Re: WFC - Wells Fargo
Post by: rb on October 07, 2016, 10:35:17 AM
Oddball,

I think you've hit the nail on the head on the income inequality stuff. In my opinion it is the biggest and most significant economic problem we have today. I see aggregate demand has been week for at least a decade and a half because of growing income inequality. Basically the money accrues to the people that won't spend it and the ones who want to spend have no money to spend.

Regarding the pitchforks, I don't think we'll see them because we have elections and I don't know if you've noticed but the revolution is happening right now. Bernie Sanders and Donald Trump exist because people are pissed off and they want to rebel. The reason for that is income inequality. There's all this talk about trade being evil, but that's nonsense. If you look at the GDP number (the country's income) the US has done quite well. True it's been a bit slower since the 08 crash. But in reality it did much better than expected given the magnitude of that crisis. So the country overall has no problem earning money. So why are people poor and dissected? Because of how that income is distributed. Because of income inequality.

Now it's easy to make up a story about trade that sounds simple: Mexicans and Chinese are taking your money. Then come up with some solutions that sound simple: scrap NAFTA, institute tariffs. It's easy to sell that. It's not easy to sell the reality. Well you see you are not doing well because of income inequality which is caused by a set of forces - some simpler and some really complicated, some of which you were strongly in favor of. And the solutions for that is a set of complicated policies, some of which you will disagree with ideologically but which are necessary. I don't know how you sell that and win an election.

However I think we may be on the right path of slowly improving. Politicians aren't stupid and they see what's going on. Stumpf took a bipartisan lashing in congress that you wouldn't have expected 10 or 20 years ago. I think both sides know they'll be out of a job if they don't move on income inequality and they will make progress.

All that being said, is WFC the straw that breaks the camel's back? Will someone drop a sack of bricks on their head? I have no way of knowing for sure but I don't think so. I think they made a tactical error and misunderstood the magnitude of what they did and thus created a bigger problem. But I think they get it now, if for no other reason than that uncle Warren explained it to them and I think they will move quickly to solve it and put it behind them. Yes it will cost a chunk of money, but at their size it's still a speeding ticket. They just made it a 40 over ticket out of a 20 over ticket cause they argued with the cop.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on October 07, 2016, 06:05:42 PM
oddball,

I don't think we are at the pitchforks point in re: banks.

I also don't think we are at the pitchforks point re: income inequality, but IMO we are at a point where we should start do things so we don't get to the pitchfork point. At pitchfork point, it is too late to do something. But this is OT on this thread.

I think there is recency bias re: WFC. Or like Kahneman says WYSIATI (what you see is all there is).
So in one sense, this might be a buy point where people expect it only get worse for WFC - but it won't.
OTOH, there is no guarantee that it won't. There is the reflexivity part of WYSIATI, where WYSIATI causes more investigations, more lawsuits, more fines, etc. So it could get worse.

In some sense, both sides are right (in some possible future world). In terms of investing in WFC, people just have to decide on possibilities and probabilities of the different future scenarios.

People won't do the pitchfork in the US (this would be different in France, where they have a history for revolutions and would do it), but they might elect somebody who does the work with the pitchfork for them. If you have a large percentage of people who have little to lose from their POV and don't give a damn, a lot of bad things can happen.
Title: Re: WFC - Wells Fargo
Post by: RichardGibbons on October 07, 2016, 06:08:06 PM
He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.

This is interesting to me, because never before have we had such a powerful propaganda machine as we do now. There's an entire TV network dedicated to promoting the message that anyone can succeed if they just work hard enough, when really, America has horrible income mobility. People truly believe in the American dream, when really, if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.  (It probably is one of the best countries to live in if you don't just want to get rich, but make billions.)

So I'm curious whether this propaganda can succeed over the long term and eventually create a Brave New World dystopia, or if something upsets that trend.

I think RB's totally nailed it with Sanders and Trump being two of the first manifestations of this dissatisfaction over income inequality.

Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on October 07, 2016, 06:15:49 PM
He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.

This is interesting to me, because never before have we had such a powerful propaganda machine as we do now. There's an entire TV network dedicated to promoting the message that anyone can succeed if they just work hard enough, when really, America has horrible income mobility. People truly believe in the American dream, when really, if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.  (It probably is one of the best countries to live in if you don't just want to get rich, but make billions.)

So I'm curious whether this propaganda can succeed over the long term and eventually create a Brave New World dystopia, or if something upsets that trend.

I think RB's totally nailed it with Sanders and Trump being two of the first manifestations of this dissatisfaction over income inequality.

I'm living the Dream baby. 
Title: Re: WFC - Wells Fargo
Post by: rb on October 07, 2016, 06:18:47 PM
Honestly, I don't think that our propaganda is much better than in was at other times of income inequality, say 1848 or gilded age. Surely, it is more high tech and seems more rapid response-y. But in the past we had really good propaganda as well and really not much as changed. For example, after the 08 crisis I developed this quirk of looking back at the great depression press, and the articles in 2011 or so were virtually identical to the ones circa 1932. If i gave you one to read you wouldn't be able to accurately tell which era it was written in.

It's one of those things where the more things change the more they stay the same. The delivery method may be different but the end result is the same. The ones telling themselves that they'll be able to get by cause they have better propaganda so this time will be different are kidding themselves and will be sadly disappointed. That being said, i think society and business will be fine in the end even though we may go through a bumpy adjustment period, a more prosperous era lies ahead.
Title: Re: WFC - Wells Fargo
Post by: RichardGibbons on October 07, 2016, 09:40:18 PM
Yeah, that's plausible too, RB.  You do have the mass media and other technology, but there are balancing factors too, like people being more cynical of advertising and politicians in general. And, while the wealthy control much of the media, the internet is far less controlled.

My big fear is the combination of facial recognition technology, ubiquitous cameras, and fear of terrorists eventually leads to a 1984-like outcome.  With these hidden courts, searches without warrants, state-sanctioned torture, and killings of Americans by the state without a trial, things keep ratcheting up in that direction.  Things rarely seem to move toward liberty and transparency in government.
Title: Re: WFC - Wells Fargo
Post by: Jurgis on October 07, 2016, 09:51:47 PM
if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.

Depends of what kind of poor.

Uneducated few-or-no-qualifications/skills poor - America is pretty bad.

Educated skilled immigrant poor - America is one of the best. I know a bunch of people in this category who started from zero and are doing good to great.
Title: Re: WFC - Wells Fargo
Post by: LR1400 on October 07, 2016, 10:05:21 PM
He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.

This is interesting to me, because never before have we had such a powerful propaganda machine as we do now. There's an entire TV network dedicated to promoting the message that anyone can succeed if they just work hard enough, when really, America has horrible income mobility. People truly believe in the American dream, when really, if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.  (It probably is one of the best countries to live in if you don't just want to get rich, but make billions.)

So I'm curious whether this propaganda can succeed over the long term and eventually create a Brave New World dystopia, or if something upsets that trend.

I think RB's totally nailed it with Sanders and Trump being two of the first manifestations of this dissatisfaction over income inequality.

Seriously?

The small town I live in (less than 30,000 people) is full of multimillionaire individuals who started in the poor-middle class range. Your comments are ridiculous. I personally know someone who went from salad position at his wife's family company to owning it and building it up to a personal net worth of over $100 million. I know another person who has had two bankrupt companies and who will be worth $10 million in a few years at around 60 years old, from very basic real estate investing.

It takes a lot of hardwor, drive, and some luck. But it is very achievable. I've noticed the ones who don't really get there in the US, at least in my area, are whiners who don't want to take any personal risks, don't  nat to really educate themselves, and don't want to work their ass off.

Some people just don't have the balls to be entrepreneurs and that's ok, but the US is a place where an entrepreneur can work their ass off and make a few smart moves and be worth multiple millions. This is for male, female, black, white, Latino, etc.
Title: Re: WFC - Wells Fargo
Post by: LR1400 on October 07, 2016, 10:08:50 PM
if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.

Depends of what kind of poor.

Uneducated few-or-no-qualifications/skills poor - America is pretty bad.

Educated skilled immigrant poor - America is one of the best. I know a bunch of people in this category who started from zero and are doing good to great.

Yes!

Hell, I had an uber ride from a man who was worth more than I will probably ever be worth. Cool guy, great story. Just pure inspiration. First generation American. He's what the USA is all about.
Title: Re: WFC - Wells Fargo
Post by: rb on October 07, 2016, 10:28:00 PM
Yeah, that's plausible too, RB.  You do have the mass media and other technology, but there are balancing factors too, like people being more cynical of advertising and politicians in general. And, while the wealthy control much of the media, the internet is far less controlled.

My big fear is the combination of facial recognition technology, ubiquitous cameras, and fear of terrorists eventually leads to a 1984-like outcome.  With these hidden courts, searches without warrants, state-sanctioned torture, and killings of Americans by the state without a trial, things keep ratcheting up in that direction.  Things rarely seem to move toward liberty and transparency in government.
I don't think technology matters. It may be a temporary fix. You can't keep the masses down when they're pissed off with force or technology. They'll rise up and shove you're technology up you're ass. My family is from the Eastern Block. The grip of the security services in the 70s and 80s and their surveillance capabilities would make the NSA blush. Didn't help them one bit in the end. So while the idea of a 1984 world is scary I don't think it'll come to pass.

I'm actually quite optimistic about this. I think it'll work itself out. That's why I like democracy and capitalism it's full of opportunists. Trump is an opportunist. He stumbled into this situation. Maybe knowingly, maybe by dumb luck, doesn't matter. But he stumbled into it early. The pols that were against him were thinking that it's business as usual and were wrong. The people don't really know that income inequality is why they're pissed off.

So maybe we came close to an iffy situation with Trump. Maybe we missed it cause he likes tits and ass a little too much. So the pols missed whats going on. But the pols (well some of them) are not stupid, and they're paying attention, and they're all opportunists. There will be some to step up to diffuse this. Most people thin that they're beholden to money and special interests. I think that's wrong. They don't give a flyer about money. They're beholden to power and they'll take the opportunity to preserve their power. Free market at work.

Economically I think this will translate into lower margins. But that will be mitigated by higher growth and volumes. From a valuation perspective it'll be a bit of a meh.
Title: Re: WFC - Wells Fargo
Post by: rb on October 07, 2016, 10:42:57 PM
Seriously?

The small town I live in (less than 30,000 people) is full of multimillionaire individuals who started in the poor-middle class range. Your comments are ridiculous. I personally know someone who went from salad position at his wife's family company to owning it and building it up to a personal net worth of over $100 million. I know another person who has had two bankrupt companies and who will be worth $10 million in a few years at around 60 years old, from very basic real estate investing.

It takes a lot of hardwor, drive, and some luck. But it is very achievable. I've noticed the ones who don't really get there in the US, at least in my area, are whiners who don't want to take any personal risks, don't  nat to really educate themselves, and don't want to work their ass off.

Some people just don't have the balls to be entrepreneurs and that's ok, but the US is a place where an entrepreneur can work their ass off and make a few smart moves and be worth multiple millions. This is for male, female, black, white, Latino, etc.
You know, your personal anecdotes, or uber rides, there are actually reliable statistics that track income mobility and the US doesn't rank that well. You can check them out.

Furthermore, the vast majority of the populace don't want to be multimillionaires, and entrepreneurs, and take personal risks. Quite the opposite. They want to go to work, earn an income, come home and spend time with their families, watch TV, and take no personal risks. They also have have a lot of power. There's strength in numbers and they also vote.

It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.
Title: Re: WFC - Wells Fargo
Post by: LR1400 on October 07, 2016, 10:47:57 PM
Seriously?

The small town I live in (less than 30,000 people) is full of multimillionaire individuals who started in the poor-middle class range. Your comments are ridiculous. I personally know someone who went from salad position at his wife's family company to owning it and building it up to a personal net worth of over $100 million. I know another person who has had two bankrupt companies and who will be worth $10 million in a few years at around 60 years old, from very basic real estate investing.

It takes a lot of hardwor, drive, and some luck. But it is very achievable. I've noticed the ones who don't really get there in the US, at least in my area, are whiners who don't want to take any personal risks, don't  nat to really educate themselves, and don't want to work their ass off.

Some people just don't have the balls to be entrepreneurs and that's ok, but the US is a place where an entrepreneur can work their ass off and make a few smart moves and be worth multiple millions. This is for male, female, black, white, Latino, etc.
You know, your personal anecdotes, or uber rides, there are actually reliable statistics that track income mobility and the US doesn't rank that well. You can check them out.

Furthermore, the vast majority of the populace don't want to be multimillionaires, and entrepreneurs, and take personal risks. Quite the opposite. They want to go to work, earn an income, come home and spend time with their families, watch TV, and take no personal risks. They also have have a lot of power. There's strength in numbers and they also vote.

It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

Quire frankly, if you don't want to take the personal risk, you don't deserve the level of income or reward of those who will and do. That's meritocracy at its best. If
Title: Re: WFC - Wells Fargo
Post by: rb on October 07, 2016, 10:53:58 PM
Quire frankly, if you don't want to take the personal risk, you don't deserve the level of income or reward of those who will and do. That's meritocracy at its best. If
I absolutely agree. The people that take personal risks, become entrepreneurs, have higher education, etc. deserve higher levels of income. What we're going through right now is a debate of how big the gap should be.
Title: Re: WFC - Wells Fargo
Post by: RichardGibbons on October 08, 2016, 02:02:01 AM
Seriously?

The small town I live in (less than 30,000 people) is full of multimillionaire individuals who started in the poor-middle class range. Your comments are ridiculous. I personally know someone who went from salad position at his wife's family company to owning it and building it up to a personal net worth of over $100 million. I know another person who has had two bankrupt companies and who will be worth $10 million in a few years at around 60 years old, from very basic real estate investing.

Cool you know these people.  These anecdotes are irrelevant to an argument that's actually based on statistics, but they are fun to talk about.  Here's some statistics  to broaden your understanding.

http://www.epi.org/publication/usa-lags-peer-countries-mobility/

I agree that people who work hard and take risks are more likely to get ahead.  It would be interesting to know whether risk-takers are also more likely to fall behind (like, they're choosing riskier paths, so I'd guess you'd end up with a higher mean, but higher variance.)  I imagine it would be impossible to find stats on this one.

I found this blog by Howey explains one of the big problems with income inequality nicely.

http://www.hughhowey.com/the-greatest-threat/

The key point for me is, "People are willing to harm themselves a little in order to spite someone who is being unfair."

OK, I'm going to stop the political discussions on this thread, because there's enough of that elsewhere.

Richard


Title: Re: WFC - Wells Fargo
Post by: Jurgis on October 08, 2016, 09:02:12 AM
http://www.epi.org/publication/usa-lags-peer-countries-mobility/

Ah, this talks about intergenerational mobility. So it does not capture immigrant earnings mobility. Makes sense and matches what I said.
Title: Re: WFC - Wells Fargo
Post by: ScottHall on October 08, 2016, 10:00:35 AM
Quire frankly, if you don't want to take the personal risk, you don't deserve the level of income or reward of those who will and do. That's meritocracy at its best. If
I absolutely agree. The people that take personal risks, become entrepreneurs, have higher education, etc. deserve higher levels of income. What we're going through right now is a debate of how big the gap should be.

No one deserves shit and that type of thinking will get you killed.
Title: Re: WFC - Wells Fargo
Post by: flesh on October 08, 2016, 12:05:56 PM
From what I've seen there is some but significantly less income inequality than most people seem to understand. On a forum like this I would expect people to adjust the inequality for wealth transfers in the form of changes in taxes/eitc for lower and middle income groups as well as food stamps, disability, medicare/medicaid etc. Once you adjust for all the economic factors that effect one's quality of life or income/wealth it looks a bit different?

http://www.aei.org/publication/adjusting-transfers-federal-taxes-reduces-income-inequality-50/

http://www.pewresearch.org/fact-tank/2015/09/22/the-many-ways-to-measure-economic-inequality/

That said, as we become more productive and technology becomes a greater % of the economy, the money should  continue to flow upward and this is where WEB talks about utilizing the EITC.

Personally, if makes more sense to me to slowly supplement people's incomes through a mechanism like the EITC while keeping the min wage low. This way we are competitive with trade as labor costs are low, we have lower local prices, more jobs, and all the other ancillary benefits of low wages. Importantly, those who are working will benefit from this and not those who are not.  Over time as the money flows up, assuming those folks are paying a higher tax rate (40%), the incremental tax revenues may cover a good portion of a growing EITC or something like it.

Eventually, with AI and robots, it becomes clear that there will have to be growing entitlements as workers get displaced. It's silly to speed up the process by raising min wages and/or artificially slowing innovation by increasing taxes for something like a basic wage at this point. Again, supplement those who are willing to work with something like the EITC.

Hopefully in our lifetimes we end up in a star trek like society, this will be accomplished by over-weighting productivity/innovation gains, not socialism. If my kids could spend there lives studying something sciencey vs. scrambling to make a buck, that would be great.

Title: Re: WFC - Wells Fargo
Post by: Jurgis on October 08, 2016, 12:27:42 PM
It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

I'm somewhat amazed about people who earn 80-120K+ whining about low income. They are somewhere in the top 7-10% by income assuming 2 earners in household ( http://www.mybudget360.com/wp-content/uploads/2011/12/distribution-of-household-income-united-states1.png ).

On one hand, I understand your explanation of this: they are riled about the 1%-ers or 0.1%-ers and the "exponential thing".

On the other hand, even if we did something about income inequality, these people would likely not benefit at all. I.e. if 1%-ers or 0.1%-ers paid more taxes, and the bottom 10-25% got more earned income credits (or something like that), the 80-120K-ers would still be where they are. Would they still whine? Is that the human condition of not being happy whatever you have?

(Yeah, we should move this to some other thread...  8) )
Title: Re: WFC - Wells Fargo
Post by: Jurgis on October 08, 2016, 12:29:22 PM
Good post, flesh.  8)
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on October 10, 2016, 08:27:07 AM
This assumes zero growth for earnings/dividend (BV increases by avg of ~$0.6325/qtr).

If ROTE remain > 10%, I believe 1.3x P/B is very reasonable. The warrants may eventually be worth 1.01 shares, which would boost CAGR by ~1%. Historically, WFC trades at 1.6x to 1.7x P/B.
Title: Re: WFC - Wells Fargo
Post by: Picasso on October 10, 2016, 08:52:29 AM
Does historical P/B really matter?  The future for large banks such as WFC doesn't look nearly as good as the past.  It's like saying WMT used to average 30x earnings so let's use that as a basis for buying a LEAP that expires in a couple years.  A lot can go wrong with the warrants over that time frame.  It would be more interesting if there were at least five years left on them.
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on October 10, 2016, 09:10:02 AM
Does historical P/B really matter?  The future for large banks such as WFC doesn't look nearly as good as the past.  It's like saying WMT used to average 30x earnings so let's use that as a basis for buying a LEAP that expires in a couple years.  A lot can go wrong with the warrants over that time frame.  It would be more interesting if there were at least five years left on them.

Agreed on the historical P/B, but I didn't know what else to use without looking like I'm pulling numbers out of the air. Capital requirements are increasing again in 2017. I think WFC ROTE will be greater than average ROTE for all banks during the next 2 years and at expiration. For that reason, I think they will trade a premium to book (assuming no major write-offs, recession, ect). What that exact premium will be, I don't know.

Break-even on the warrants is 1.15x P/B in Oct 2018. Can WFC grow earnings is the big question. If they can, everything else will take care of itself. If they can't then you would be better off holding the common or finding another idea altogether.
Title: Re: WFC - Wells Fargo
Post by: undervalued on October 10, 2016, 01:20:55 PM
It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

I'm somewhat amazed about people who earn 80-120K+ whining about low income. They are somewhere in the top 7-10% by income assuming 2 earners in household ( http://www.mybudget360.com/wp-content/uploads/2011/12/distribution-of-household-income-united-states1.png ).

On one hand, I understand your explanation of this: they are riled about the 1%-ers or 0.1%-ers and the "exponential thing".

On the other hand, even if we did something about income inequality, these people would likely not benefit at all. I.e. if 1%-ers or 0.1%-ers paid more taxes, and the bottom 10-25% got more earned income credits (or something like that), the 80-120K-ers would still be where they are. Would they still whine? Is that the human condition of not being happy whatever you have?

(Yeah, we should move this to some other thread...  8) )

Most of these people whine because the group they hang out with earn over $150k. They don't hang out with the landscaper who's cutting their grass. The grass is greener on the other side for most people.
Title: Re: WFC - Wells Fargo
Post by: rkbabang on October 11, 2016, 05:25:30 AM
It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

I'm somewhat amazed about people who earn 80-120K+ whining about low income. They are somewhere in the top 7-10% by income assuming 2 earners in household ( http://www.mybudget360.com/wp-content/uploads/2011/12/distribution-of-household-income-united-states1.png ).

On one hand, I understand your explanation of this: they are riled about the 1%-ers or 0.1%-ers and the "exponential thing".

On the other hand, even if we did something about income inequality, these people would likely not benefit at all. I.e. if 1%-ers or 0.1%-ers paid more taxes, and the bottom 10-25% got more earned income credits (or something like that), the 80-120K-ers would still be where they are. Would they still whine? Is that the human condition of not being happy whatever you have?

(Yeah, we should move this to some other thread...  8) )

Most of these people whine because the group they hang out with earn over $150k. They don't hang out with the landscaper who's cutting their grass. The grass is greener on the other side for most people.

Bingo.  Yes some people will always whine no matter where they are.  Envy is an ugly thing and all too common.  And it is the squeaky wheel that gets the grease. Nobody notices the people who don't whine only the loud mouths who do.  Which is why the politicians are always trying to appease the whiners.
Title: Re: WFC - Wells Fargo
Post by: DonFanucci on October 11, 2016, 08:14:56 AM
He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.

This is interesting to me, because never before have we had such a powerful propaganda machine as we do now. There's an entire TV network dedicated to promoting the message that anyone can succeed if they just work hard enough, when really, America has horrible income mobility. People truly believe in the American dream, when really, if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.  (It probably is one of the best countries to live in if you don't just want to get rich, but make billions.)

So I'm curious whether this propaganda can succeed over the long term and eventually create a Brave New World dystopia, or if something upsets that trend.

I think RB's totally nailed it with Sanders and Trump being two of the first manifestations of this dissatisfaction over income inequality.

The American Dream isn't just getting rich. Millions of immigrants didn't come to America with the idea that they were going to be rich. The American Dream is the idea that you are free to make the choices necessary to have a fulfilled life. That could mean being a billionaire hedge fund manager or a kindergarten teacher or whatever career you value. Or it could be having a difficult job but raising your children. There's no reason to define the American dream in terms of simple materialism.

We hashed out the income inequality bit in another thread but I will just say that this is first level thinking. Income inequality doesn't cause instability- the perceived justice/injustice of inequality causes instability. It's an intellectual trend lately to denounce inequality- difference- as such. But that makes no distinction between difference that's deserved and difference that isn't. Unfortunately, the long term trends in public opinion and the power of regulators make banks precarious investments.
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on October 11, 2016, 08:27:27 AM
Make a new thread
Title: Re: WFC - Wells Fargo
Post by: indirect on October 11, 2016, 09:04:36 AM
+1
Title: Re: WFC - Wells Fargo
Post by: valuefinder0525 on October 11, 2016, 09:19:02 AM
What Wells Fargo knew
Exclusive documents show a Wells Fargo employee informed the bank of fake customer accounts in 2006

https://news.vice.com/story/wells-fargo-bank-scandal?cl=fp
Title: Re: WFC - Wells Fargo
Post by: DonFanucci on October 11, 2016, 10:55:17 AM
We can discuss the validity of these ideas in a different thread but their existence is definitely pertinent to WFC. Inequality really entered mainstream thought with the Occupy Wall Street 99-1% movement, which was protesting the big banks. Now we are at a point where both political parties score points bashing the banks. Is this the end of the trend or should we expect public perception to continue to decline? Ultimately where is the end point? Belief in the inherent wrongness of difference between people is a growth industry right now. I have a hard time seeing even good banks as quality businesses when the following is true:

1) The government sets the price of your product
2) The government maintains control over every major business decision
3) Regulations are contradictory and unknowable
4) You never have the moral high ground

IMO #4+3 are underappreciated, and the inequality alarmism going on is strengthening #4. I think together they lead to higher size and frequency of settlements with the government. I think it will get harder and harder to handicap the outcome of negative publicity events such as this one (think OCN). I think the correlation of risk among banks is increasing. For example, WFC has a scandal and it becomes an indictment of all banks- the increased power of regulators and their incentive structure will cause them to crank down on other banks so they don't get caught overseeing the same problem twice. Finally, I think there's an underappreciated possibility of a total reset, whether that's breaking the banks up or nationalization or something else I don't know. Odds are in 10 years banking will look like it does today. But if the US encounters another severe economic event, banks will take the blame (regardless of truth) and politicians will use the opportunity to punish them. Maybe this is all in the price or maybe I'm over weighting these risks- I'm not sure. I just think the trends are clear.
Title: Re: WFC - Wells Fargo
Post by: Grenville on October 12, 2016, 02:08:38 PM
Stumpf is out!
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on October 12, 2016, 02:16:07 PM
Stumpf is out!


Wells Fargo CEO Stumpf retires effective immediately; Tim Sloan to take over

http://www.cnbc.com/2016/10/12/wells-fargo-ceo-stumpf-to-depart-dj-citing-source.html (http://www.cnbc.com/2016/10/12/wells-fargo-ceo-stumpf-to-depart-dj-citing-source.html)
Title: Re: WFC - Wells Fargo
Post by: rb on October 12, 2016, 02:21:21 PM
That was quick
Title: Re: WFC - Wells Fargo
Post by: notorious546 on October 12, 2016, 02:29:19 PM
Wells Fargo Chairman, CEO John Stumpf Retires; Board of Directors Elects Tim Sloan CEO, Director; Appoints Lead Director Stephen Sanger Chairman, Director Elizabeth Duke Vice Chair
Wednesday, October 12, 2016 09:04:00 PM (GMT)

Wells Fargo & Company (NYSE:WFC) announced today that Chairman and Chief Executive Officer John Stumpf has informed the Company’s Board of Directors that he is retiring from the Company and the Board, effective immediately. The Board has elected Tim Sloan, the Company’s President and Chief Operating Officer, to succeed him as CEO, and Stephen Sanger, its Lead Director, to serve as the Board’s non-executive Chairman, and independent director Elizabeth Duke to serve as Vice Chair. Sloan also was elected to the Board.

Sloan’s appointment to CEO and election to the Board are effective immediately. He will retain the title of President.

Sanger said, “John Stumpf has dedicated his professional life to banking, successfully leading Wells Fargo through the financial crisis and the largest merger in banking history, and helping to create one of the strongest and most well-known financial services companies in the world. However, he believes new leadership at this time is appropriate to guide Wells Fargo through its current challenges and take the Company forward. The Board of Directors has great confidence in Tim Sloan. He is a proven leader who knows Wells Fargo’s operations deeply, holds the respect of its stakeholders, and is ready to lead the Company into the future.”

Stumpf, a 34-year veteran of the Company, joined Wells Fargo in 1982 as part of the former Norwest Bank, becoming Wells Fargo’s CEO in June 2007 and its chairman in January 2010.

“I am grateful for the opportunity to have led Wells Fargo,” Stumpf said. “I am also very optimistic about its future, because of our talented and caring team members and the goodwill the stagecoach continues to enjoy with tens of millions of customers. While I have been deeply committed and focused on managing the Company through this period, I have decided it is best for the Company that I step aside. I know no better individual to lead this company forward than Tim Sloan.”

Sloan said, “It’s a great privilege to have the opportunity to lead one of America’s most storied companies at a critical juncture in its history. My immediate and highest priority is to restore trust in Wells Fargo. It’s a tremendous responsibility, one which I look forward to taking on, because of the incredible caliber of our people, and the opportunity we have to impact the lives of our millions of customers around the world. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.”

Sloan joined Wells Fargo 29 years ago, launching a career that would include numerous leadership roles across the Company’s wholesale and commercial banking operations, including as head of Commercial Banking, Real Estate and Specialized Financial Services. He became president and COO in November 2015, when he assumed leadership over the Company’s four main business groups: Community Banking, Consumer Lending, Wealth and Investment Management and Wholesale Banking. Previously, he headed the Wholesale Banking group after serving as the Company’s Chief Financial Officer and, prior to that, as the Company’s Chief Administrative Officer.

Sanger has been a member of the Wells Fargo Board since 2003, serving as its Lead Director since 2012. Sanger also chairs the Governance and Nominating Committee and is a member of Human Resources Committee and Risk Committee. He was CEO of General Mills, Inc., a leading packaged food producer and distributor, from 1995 until 2007. He served as chairman of General Mills from 1995 to 2008. He also serves on the board of Pfizer Inc.

Duke has been a member of the Wells Fargo Board since 2015. She served as a member of the Board of Governors of the Federal Reserve System from 2008 to 2013, where she served as Chair of the Federal Reserve’s Committee on Consumer and Community Affairs and as a member of its Committee on Bank Supervision and Regulation, the Committee on Bank Affairs, and the Committee on Board Affairs. She also previously held senior management positions at banks including Wachovia and SouthTrust.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,600 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 36 countries and territories to support customers who conduct business in the global economy. With approximately 268,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 27 on Fortune’s 2016 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially. Wells Fargo perspectives are also available at Wells Fargo Blogs and Wells Fargo Stories.
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on October 12, 2016, 02:34:35 PM
Well that explains Warren refusing to comment on Wells a few weeks ago, he was obviously trying to have Stumpf removed.
Title: Re: WFC - Wells Fargo
Post by: Grenville on October 12, 2016, 02:37:08 PM
Well that explains Warren refusing to comment on Wells a few weeks ago, he was obviously trying to have Stumpf removed.

He told CNBC that he had not spoken to the BoD back then, only Stumpf. That may have changed recently.
Title: Re: WFC - Wells Fargo
Post by: vox on October 12, 2016, 02:47:29 PM
My prediction is that the Board will go hard to try and recruit Richard Davis of U.S. Bancorp as its new CEO. He would be an excellent choice for shareholders.
Title: Re: WFC - Wells Fargo
Post by: Mephistopheles on October 12, 2016, 02:49:35 PM
Well that explains Warren refusing to comment on Wells a few weeks ago, he was obviously trying to have Stumpf removed.

My theory is that Buffett refused to comment, specifically until after the election, because it creates an awkwardness as he's endorsed HRC who took political advantage of the situation (along with everyone else). Would definitely be weird for him to defend and praise the company and Stumpf, and draw needless attention.
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on October 12, 2016, 02:58:58 PM
He told CNBC that he had not spoken to the BoD back then, only Stumpf. That may have changed recently.
As always with Buffett, you have to parse his words carefully.
Quote
"It's dead wrong to imply I've spoken to the board directly."
What he really meant. "I spoke privately with one or more members of the Board and we agreed that Stumpf had to go."

If you don't think Buffett could be so ruthless, then I suggest you give Doug Ivester (http://fortune.com/2012/11/21/what-really-happened-at-coke/) a call. He got the exact same treatment from Buffett.

What's also interesting is that the coming Q results are out this Friday. This makes me feel like we there could be a nasty surprise in store....
Title: Re: WFC - Wells Fargo
Post by: Grenville on October 12, 2016, 03:14:14 PM
As always with Buffett, you have to parse his words carefully.
Quote
"It's dead wrong to imply I've spoken to the board directly."
What he really meant. "I spoke privately with one or more members of the Board and we agreed that Stumpf had to go."

Thank you for pointing that out and sharing the Doug Ivester link. I look forward to reading it.

You're right, he could have spoken to one or more members privately.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on October 12, 2016, 05:14:20 PM
If you don't think Buffett could be so ruthless, then I suggest you give Doug Ivester (http://fortune.com/2012/11/21/what-really-happened-at-coke/) a call. He got the exact same treatment from Buffett.

What's also interesting is that the coming Q results are out this Friday. This makes me feel like we there could be a nasty surprise in store....

1. I believe when Buffett asked the fed to go beyond 10%, he claimed that he didn't plan to be involved in board matters. Board might have acted out of political necessity.
2. An internal call was leaked, suggesting that there weren't any financial surprises in this Q (other than extra legal costs). But it is interesting they took this action while the internal investigation was just getting started.
3. They didn't do any clawbacks for Tim Sloan. I took this as a pretty clear sign that they were going to elevate Sloan to CEO. They wanted to make sure his hands were clean.
Title: Re: WFC - Wells Fargo
Post by: RadMan24 on October 12, 2016, 08:42:07 PM
Sloan right man at this time, imo. Gets the ball rolling to implement some changes and restore trust.
Title: Re: WFC - Wells Fargo
Post by: Grenville on October 12, 2016, 10:49:10 PM
I hate getting worked up over this, but I think the details here are worth listening to.

Planet Money Episode 728: "The Wells Fargo Hustle"
http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle (http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle)
h/t txlaw

I hope the Wells Fargo board investigates these claims and if true clears the record of these folks and gives them some monetary restitution.

Also Tim Sloan gave a phone interview today to CNBC:
https://t.co/mp1NDYA3TI (https://t.co/mp1NDYA3TI)

Based on his answers, I'm pessimistic that he's the right leader to get WFC out of this mess. I feel like Wells needs an outsider to clean up the culture and restore trust. The earnings call should be good, I hope Mayo gets in some good questions. Maybe Sloan will get his moment in the light in front of the government.
Title: Re: WFC - Wells Fargo
Post by: tng on October 13, 2016, 07:03:10 AM
Does anybody else expect a multi-billion dollar fines and legal fees before this is over? Bank of America was whacked for about $60 billion for the sins of Merrill and Countrywide when they were forced into buying Merrill and forced into not activating the material adverse change clauses (so you'd expect the government to be more lenient). And most of that can be explained by incompetence. But here, it is 100% fraud. It's basically a slam dunk case for the government and politicians looking for free points.
Title: Re: WFC - Wells Fargo
Post by: TwoCitiesCapital on October 13, 2016, 07:11:06 AM
Does anybody else expect a multi-billion dollar fines and legal fees before this is over? Bank of America was whacked for about $60 billion for the sins of Merrill and Countrywide when they were forced into buying Merrill and forced into not activating the material adverse change clauses (so you'd expect the government to be more lenient). And most of that can be explained by incompetence. But here, it is 100% fraud. It's basically a slam dunk case for the government and politicians looking for free points.

Yes, but we're also 8 years removed from 2008. Banks are out-of-favor, but they're not hated like they were. My guess is that 2008 won't be a good comparable.
Title: Re: WFC - Wells Fargo
Post by: Travis Wiedower on October 13, 2016, 07:34:46 AM
Planet Money Episode 728: "The Wells Fargo Hustle"
http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle (http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle)
h/t txlaw

That's sad and infuriating. I was shocked they promoted a new CEO from within. A scandal like this needs an outsider who can start from scratch and has no loyalty to anyone involved.
Title: Re: WFC - Wells Fargo
Post by: LongHaul on October 13, 2016, 08:27:19 AM
I am not sure what top mgmt at Wells knew, let's see from the investigation.  But they should have known. 

However, memories are short.  Wells with Stumpf breezed right thru the crisis with minimal losses which was a great service to US citizens and its customers.  That far overrides this situation.  We need a lot more bankers like Wells.

I probably would not of fired Wells CEO unless he was implicated in pushing the fraudulent practices.  That is contrary to many but
a good disciplined banker is rare.  If you are expecting perfection from any compensation scheme and perfect behavior from any company you are living in fantasy land.

And let's not forget what happened when Spitzer pushed out Hank Greenberg who was not replaceable as far as risk mgmt. 
AIG ended up with a buffoon who likely destroyed it and had to get a govt bailout.
Title: Re: WFC - Wells Fargo
Post by: merkhet on October 13, 2016, 08:31:00 AM
^ I agree up to a point. Stumpf's reaction to this crisis left a lot to be desired, IMHO. I can even understand him not being particularly up to speed for the first congressional hearing, but his performance for the second congressional hearing was disgraceful. No ownership of the problem, no attempt to fashion a solution, etc.

But I agree that Wells' stewardship up and to the GFC was something to be admired, and I think it outweighs this current crisis.
Title: Re: WFC - Wells Fargo
Post by: Viking on October 13, 2016, 05:16:29 PM
I wonder what Wells actually can do in the short term to 'fix' this issue. What happened was pretty bad, pretty widespread and happened over many years (my guess is most people there were aware it was an issue). I also listened to the new CEO's comments in the CNBC interview and was not impressed (better than Stumpf but not by much). Wells really is in a no win situation on this one and the next couple of months will likely be painful for investors.

Longer term I actually think this may be a very good thing for Wells Fargo. It appears they were getting a little too big for their britches; a little too arrogant. The CEO and Chairman roles have now been separated. They are going to be doing some important internal housecleaning; if there are any more skeletons they should be identified and addressed. This should prepare the bank well.

Let's hope the stock continues to decline. My guess is after the election we will hear from Buffett and my expectation is he will chastise Wells for past behavior but reaffirm he has full confidence in the company moving forward. Shares will at that point move higher.
Title: Re: WFC - Wells Fargo
Post by: flesh on October 13, 2016, 07:17:33 PM
Planet Money Episode 728: "The Wells Fargo Hustle"
http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle (http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle)
h/t txlaw

That's sad and infuriating. I was shocked they promoted a new CEO from within. A scandal like this needs an outsider who can start from scratch and has no loyalty to anyone involved.

Its interesting how variant perspectives can be. I've followed this and just listened to "wells fargo hustle", and basically I thought, so what.

I'm not sure what businesses the rest of you have been involved in but my experience as a salesman and running my own marketing company is not unlike what wells has been doing. Either I'm shady, like wells, according to some, or some of you are not familiar with the grey areas one must inhabit to do business and remain competitive. I can't say which it is for sure.

In the past i routinely set difficult to reach sales goals for my employees and beyond that, believe it or not, I fired them when they didn't achieve them. My expectation was that 1 out of 5 of them would quit, leaving me with the best suited to the job, this typically took a couple months. There was no room for under performance and frankly I would laugh at the people who quit, not because they were inadequate in some broad sense, but because they never took accountability. Their claimed reason for failure was things like pressure, ethics, etc, but never, never, that they just couldn't cut it. No one who was successful ever shared the same challenges as those that failed.

In the event that I'm wrong, meaning, you don't have to deal in grey areas to make an above average income, I'd love to hear about the jobs/businesses that I could participate in to achieve this degree of wholesomeness. Anecdotally, my bro in law, an anesthesiologist, sometimes deals with patients whom he's pretty sure doesn't need the surgery. My father, a utility cost consultant, often charges businesses tens of thousands of dollars for 10 minutes of work, he feels conflicted about this because he's paid based as a % of what he saves them, is this bad or good?

My sales people would routinely break rules to achieve goals. Naturally over time I would do my best to solve this problem. According to some, apparently I should have just done away with goals altogether so that some people wouldn't have to feel uncomfortable and sometimes feel pressured to break rules. Even though doing so would reduce my and my staff's income substantially.  Again, this is not the business world that I am familiar with and I suspect that if you are, your in a monopoly situation and not a competitive one.



Title: Re: WFC - Wells Fargo
Post by: rb on October 13, 2016, 07:25:59 PM
Flesh. I think that Warren Buffett and Berkshire Hathaway proved that you can make lot's of money without having to play in the gray zone. That's just a high profile company that everyone on this board is familiar with. There are tons of businesses around of different sizes and not that well known that treat their employees and customers with respect and avoid gray areas like the plague and are nonetheless very profitable. You do with your business what you wish.
Title: Re: WFC - Wells Fargo
Post by: arcube on October 13, 2016, 07:30:38 PM
Planet Money Episode 728: "The Wells Fargo Hustle"
http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle (http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle)
h/t txlaw

That's sad and infuriating. I was shocked they promoted a new CEO from within. A scandal like this needs an outsider who can start from scratch and has no loyalty to anyone involved.

Its interesting how variant perspectives can be. I've followed this and just listened to "wells fargo hustle", and basically I thought, so what.

I'm not sure what businesses the rest of you have been involved in but my experience as a salesman and running my own marketing company is not unlike what wells has been doing. Either I'm shady, like wells, according to some, or some of you are not familiar with the grey areas one must inhabit to do business and remain competitive. I can't say which it is for sure.

In the past i routinely set difficult to reach sales goals for my employees and beyond that, believe it or not, I fired them when they didn't achieve them. My expectation was that 1 out of 5 of them would quit, leaving me with the best suited to the job, this typically took a couple months. There was no room for under performance and frankly I would laugh at the people who quit, not because they were inadequate in some broad sense, but because they never took accountability. Their claimed reason for failure was things like pressure, ethics, etc, but never, never, that they just couldn't cut it. No one who was successful ever shared the same challenges as those that failed.

In the event that I'm wrong, meaning, you don't have to deal in grey areas to make an above average income, I'd love to hear about the jobs/businesses that I could participate in to achieve this degree of wholesomeness. Anecdotally, my bro in law, an anesthesiologist, sometimes deals with patients whom he's pretty sure doesn't need the surgery. My father, a utility cost consultant, often charges businesses tens of thousands of dollars for 10 minutes of work, he feels conflicted about this because he's paid based as a % of what he saves them, is this bad or good?

My sales people would routinely break rules to achieve goals. Naturally over time I would do my best to solve this problem. According to some, apparently I should have just done away with goals altogether so that some people wouldn't have to feel uncomfortable and sometimes feel pressured to break rules. Even though doing so would reduce my and my staff's income substantially.  Again, this is not the business world that I am familiar with and I suspect that if you are, your in a monopoly situation and not a competitive one.

+1 This is one of the most honest and thought provoking posts. I appreciate you sharing.
Title: Re: WFC - Wells Fargo
Post by: Picasso on October 13, 2016, 07:53:05 PM
flesh,

I think for most businesses that might be true.  You naturally want the best salesman in the organization.  I remember being hired in a "class" with about a hundred other salesmen and within two years it was whittled down to less than ten salesman, myself included.  I saw a lot of guys being put under pressure to do really unethical things to survive an extra month or two.

But I'm guessing your business isn't dominated by workers who lack the pedigree to get a better job out of school or whatnot.  Wells Fargo is unique among the large banks in that the personal bankers almost always have a Series 6 license.  That lets them sell certain security products like in house mutual funds.  But they also have a public/private U-4 that comes with that license.  So if Wells Fargo decides to fire them for not performing in sales, they can put on the U-4 "Terminated for not performing job duties."  It makes it incredibly difficult for them to find any other banking jobs.

Now if others are cheating the system, it makes the ones who are *not* cheating the system look much worse.  A lot of these sales goals were based on how districts performed, so the more cheating that went on within a district the more the honest workers stood out as poor performers.  And those poor performers end up jobless for a long time because now they likely need to switch careers.  They can't just head over to a bank with a less demanding sales culture because their securities license is ruined.

It's different to work in an industry that wasn't so directly tied to taxpayer assistance where you have the ability to resize a workforce without purposefully causing a lot of devastation on their lives.  Wells should have been more mindful of that, but they're paying the penalty for that now and it seems to be quite costly from a reputation standpoint.
Title: Re: WFC - Wells Fargo
Post by: flesh on October 13, 2016, 11:13:18 PM
Flesh. I think that Warren Buffett and Berkshire Hathaway proved that you can make lot's of money without having to play in the gray zone. That's just a high profile company that everyone on this board is familiar with. There are tons of businesses around of different sizes and not that well known that treat their employees and customers with respect and avoid gray areas like the plague and are nonetheless very profitable. You do with your business what you wish.

RB,

I am attracted to WEB because as you stated he's proven you can have high standards and be very successful, for me, this is what intrigued me most about him and I owe a lot to him. On the black to white spectrum, of the truly rich, he's no doubt quite close to pure white. OTOH, it's not difficult to make a case he's no angel. I doubt I"ll get much push back on that from anyone who knows his whole history. He's honest, yet tough.

I'm hoping I'm wrong, I'm hoping there's a better way, I shut down my marketing company and started a incubator fund because of WEB. At a huge pay cut, so far. That said, I'm prone to optimism and possibly delusional.

Arcube, Thanks.

Picasso,

If it's true Wells routinely/indiscriminately put poor ratings on their employees U4's, this is clearly evil and taking using pain/the stick to motivate too far. It's one thing to push people and see who shines, it's a different animal to put them out of work long term. If this is the case, would you point me toward it being commonplace?

How would we know it was commonplace? IMO, if cheaters were causing sales people to lose their jobs in different regions, the problem is that mgmt didn't improve their ability to catch cheaters fast enough. Maybe the ceo should be fired for being lazy? Perhaps I'm incorrect but I'd bet private companies wo massive headline risk would think of nothing other than this.

It's difficult to say how ubiquitous the problem really is. Considering wells has tens of thousands of employees, how many would it/should it take before we are convinced it's gone to far? How much weight should be given to disgruntled employees?

I'm not convinced this all amounts to anything more material than the politicians can cook up.

No more sales goals except the kind with zero incentives/consequences? Bizarre.

Title: Re: WFC - Wells Fargo
Post by: SmallCap on October 14, 2016, 10:46:47 AM
Flesh. I think that Warren Buffett and Berkshire Hathaway proved that you can make lot's of money without having to play in the gray zone. That's just a high profile company that everyone on this board is familiar with. There are tons of businesses around of different sizes and not that well known that treat their employees and customers with respect and avoid gray areas like the plague and are nonetheless very profitable. You do with your business what you wish.

Have you experience the tactics and pressure used by Kirby Vacuum cleaner sales people and their managers? Very much in the grey area. I don't believe that WEB would ever operate in this way and yet one of his subsidiaries operates that way.
Title: Re: WFC - Wells Fargo
Post by: undervalued on October 14, 2016, 12:01:44 PM
Flesh. I think that Warren Buffett and Berkshire Hathaway proved that you can make lot's of money without having to play in the gray zone. That's just a high profile company that everyone on this board is familiar with. There are tons of businesses around of different sizes and not that well known that treat their employees and customers with respect and avoid gray areas like the plague and are nonetheless very profitable. You do with your business what you wish.

Have you experience the tactics and pressure used by Kirby Vacuum cleaner sales people and their managers? Very much in the grey area. I don't believe that WEB would ever operate in this way and yet one of his subsidiaries operates that way.

WEB follows the returns. Usually those companies have above average returns which usually translate with above average business discipline / tactics but for sure not average.
Title: Re: WFC - Wells Fargo
Post by: Jurgis on October 14, 2016, 12:08:53 PM
I think this is somewhat tough situation.

On one hand, like flesh says, some organizations succeed and do better than others due to the sales push tactics. This was probably one of the reasons WFC outperformed other banks.

On the other hand, it sucks to be the ones forced to sell (never done it myself, but had relatives in retail where they had to push CCs and stuff), it sucks to be customer to whom unnecessary crap is pushed, it sucks to be person who's fired with black record, it sucks to be person who resorts to fraud, it sucks ultimately for WFC where 2M fake accounts brought very little business, but a huge losses in reputation/etc.

There has to be balance. It is likely WFC overstepped. Whether they can work out a good solution for the future is one of the questions on how well they will do.
Title: Re: WFC - Wells Fargo
Post by: Matson125 on October 20, 2016, 10:36:46 AM
LOL, just for the added data point. I decided to check out my mother's relationship with Wells (she's super unsophisticated). They were table to talk her into creating new checking accounts for different travel destinations, explaining to her that by having separate accounts it limited her financial exposure if her account information became compromised (kind of true! good job, bankers).

Morality aside, it is really unbelievable that Wells didn't at the most basic level have something in place to recognize that turning a PMA customer with 1 checking account into a PMA customer with 3 checking accounts doesn't actually create much value for the company. Everybody involved in the design of this system deserves to be fired for basic incompetence.

Voices From Wells Fargo: ‘I Thought I Was Having a Heart Attack’

http://www.nytimes.com/2016/10/21/business/dealbook/voices-from-wells-fargo-i-thought-i-was-having-a-heart-attack.html?smid=tw-share&_r=0

Johnny, thanks for your example.  Check out #1.
Title: Re: WFC - Wells Fargo
Post by: IceCreamMan on October 21, 2016, 10:14:17 AM
http://www.nytimes.com/2016/10/21/business/dealbook/lions-hunting-zebras-ex-wells-fargo-bankers-describe-abuses.html
Title: Re: WFC - Wells Fargo
Post by: Grenville on October 21, 2016, 12:32:23 PM
Voices From Wells Fargo: ‘I Thought I Was Having a Heart Attack’

http://www.nytimes.com/2016/10/21/business/dealbook/voices-from-wells-fargo-i-thought-i-was-having-a-heart-attack.html?smid=tw-share&_r=0

These stories are crazy…I hope more people at Wells are held responsible.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on October 21, 2016, 12:43:15 PM
Voices From Wells Fargo: ‘I Thought I Was Having a Heart Attack’

http://www.nytimes.com/2016/10/21/business/dealbook/voices-from-wells-fargo-i-thought-i-was-having-a-heart-attack.html?smid=tw-share&_r=0

These stories are crazy…I hope more people at Wells are held responsible.

absolutely disgusting...
Title: Re: WFC - Wells Fargo
Post by: flesh on October 21, 2016, 01:30:02 PM
Voices From Wells Fargo: ‘I Thought I Was Having a Heart Attack’

http://www.nytimes.com/2016/10/21/business/dealbook/voices-from-wells-fargo-i-thought-i-was-having-a-heart-attack.html?smid=tw-share&_r=0

These stories are crazy…I hope more people at Wells are held responsible.

absolutely disgusting...

Does a company exist with 10's of thousands of employees in which you can not find some employees (the guy in the article had ptsd no less) with experiences like this? If 1/1000th of 1% of employees have an experience like this annually, how many of these stories would we see? Is this bad or good? Given the distribution of extreme depression/anxiety that permeates the country and the distorted perception it creates at an individual level, would you expect any less under any possible circumstances?



Title: Re: WFC - Wells Fargo
Post by: undervalued on October 21, 2016, 01:36:39 PM
Voices From Wells Fargo: ‘I Thought I Was Having a Heart Attack’

http://www.nytimes.com/2016/10/21/business/dealbook/voices-from-wells-fargo-i-thought-i-was-having-a-heart-attack.html?smid=tw-share&_r=0

These stories are crazy…I hope more people at Wells are held responsible.

absolutely disgusting...


I might be bias as a WFC shareholder but after reading the article I am speechless. I didn't know it's safe to drink hand sanitizer.

Quote
I started to have extreme physical stress-related symptoms as well as random panic attacks. At some point during that summer, the stress was so intense that I could no longer handle the pressure. On the banker’s desk, in the bathroom, behind the teller line and in the vault, the store kept bottles of hand sanitizer.

One morning, before meeting with a customer, in which I knew I was going to have to sell unneeded services, I had a severe panic attack. I went to the bathroom and took a drink of some hand sanitizer.

This immediately reduced my anxiety. From that point, I began drinking the hand sanitizer all over the bank.

In late November 2012, I was completely addicted to hand sanitizer and drinking at least a bottle a day during my workday. In December, I was confronted by management about my behavior. I decided to seek treatment and went on leave.


Quote
Julie Miller, banker and manager in Allentown, Pa., 2005 to 2013

I got terminated for not achieving my sales goals one year after receiving an annual award for being in the top 2 percent of managers in the country for sales.

She were in the company for 8 years. She was the top 2 percent of managers in the country for sales.

I think they want some of the settlement pie.
Title: Re: WFC - Wells Fargo
Post by: muscleman on October 22, 2016, 09:14:37 PM
These employ stress stories are no different from the NYT article about Amazon being a Brutal working place.
Title: Re: WFC - Wells Fargo
Post by: Og on October 22, 2016, 09:51:43 PM
Flesh. I think that Warren Buffett and Berkshire Hathaway proved that you can make lot's of money without having to play in the gray zone. That's just a high profile company that everyone on this board is familiar with. There are tons of businesses around of different sizes and not that well known that treat their employees and customers with respect and avoid gray areas like the plague and are nonetheless very profitable. You do with your business what you wish.

Have you experience the tactics and pressure used by Kirby Vacuum cleaner sales people and their managers? Very much in the grey area. I don't believe that WEB would ever operate in this way and yet one of his subsidiaries operates that way.

That's the difference between a company like Berkshire where there's many different cultures VS a company like Markel where it's more uniform. Different models. Kirby is very much a Stage 3 culture where as Berkshire as a whole is Stage 4/Stage 5.

For those not familiar with those cultural mental models, check out this link starting at 23:50, http://www.mindsuitemetrics.com/culture-map-presentation

Average increase in profits go up on average from 3-5x when an organization stabilizes themselves from Stage 3 to Stage 4 hence why I actually like Markel's cultural model and see it as superior to Berkshire's.
Title: Re: WFC - Wells Fargo
Post by: vox on October 31, 2016, 06:47:03 AM
http://www.npr.org/sections/money/2016/10/28/499805238/episode-732-bad-form-wells-fargo

NPR reports that FINRA is conducting a review of U5 forms filed by Wells Fargo in recent years.
Title: Re: WFC - Wells Fargo
Post by: zippy1 on November 01, 2016, 03:40:21 PM
http://www.npr.org/sections/money/2016/10/28/499805238/episode-732-bad-form-wells-fargo

NPR reports that FINRA is conducting a review of U5 forms filed by Wells Fargo in recent years.
I tracked this NPR story.  This company really have a culture going after the whistle blower, according to the fired employees.
I don't think this company is investable...
Title: Re: WFC - Wells Fargo
Post by: Grenville on November 01, 2016, 11:58:06 PM
http://www.npr.org/sections/money/2016/10/28/499805238/episode-732-bad-form-wells-fargo

NPR reports that FINRA is conducting a review of U5 forms filed by Wells Fargo in recent years.
I tracked this NPR story.  This company really have a culture going after the whistle blower, according to the fired employees.
I don't think this company is investable...

Thanks for bumping this up, I had bookmarked it but forgot to listen.

Much kudos for NPR  on continuing to investigate this story. It's the best way I see for all those fired WFC employees to have their stories heard and just maybe have their record cleared (U5).

WFC is tone deaf, everyday there is a one page ad in the WSJ, if they would stop trying to appease wall street and make these things right.

I sure hope Mr Buffett is aware of this or is asked directly about this. He's a 10% owner and this stuff happened during his ownership. If he's serious about reputation and Wells Fargo drags their feet, I hope he speaks up, more heads roll and Mr Buffett brings in someone from the outside. It's November and it's time to hear from Mr Buffett.

This is ridiculous.

When you ruin peoples live's over something stupid like products per customer and horrible upper management that's inexcusable.
Title: Re: WFC - Wells Fargo
Post by: rb on November 10, 2016, 02:48:26 PM
Culture smulture.

15% in two days for wells fargo is a ridiculous move......interest rates and deregulation is all that matters for wells fargo. 

This trump guy lol
I don't think interest rates are going up. I think it's more the Liz Warren factor. I don't know whether they should be this happy but anyway it's one of my largest positions so I'll take the gain. It was pretty oversold anyway.
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on November 10, 2016, 02:50:04 PM
Culture smulture.

15% in two days for wells fargo is a ridiculous move......interest rates and deregulation is all that matters for wells fargo. 

This trump guy lol


 


And a new administration that is less likely to make WFC a whipping boy for its own cynical political benefit.
Title: Re: WFC - Wells Fargo
Post by: undervalued on November 11, 2016, 12:03:03 PM
I am sure you have read it but here it is anyway. http://www.bloomberg.com/news/articles/2016-11-11/buffett-says-stumpf-made-a-hell-of-a-mistake-at-wells-fargo (http://www.bloomberg.com/news/articles/2016-11-11/buffett-says-stumpf-made-a-hell-of-a-mistake-at-wells-fargo)

If you want to hear the interview http://money.cnn.com/2016/11/11/investing/warren-buffett-wells-fargo-scandal/ (http://money.cnn.com/2016/11/11/investing/warren-buffett-wells-fargo-scandal/)
Title: Re: WFC - Wells Fargo
Post by: Grenville on November 11, 2016, 01:17:00 PM
I am sure you have read it but here it is anyway. http://www.bloomberg.com/news/articles/2016-11-11/buffett-says-stumpf-made-a-hell-of-a-mistake-at-wells-fargo (http://www.bloomberg.com/news/articles/2016-11-11/buffett-says-stumpf-made-a-hell-of-a-mistake-at-wells-fargo)

If you want to hear the interview http://money.cnn.com/2016/11/11/investing/warren-buffett-wells-fargo-scandal/ (http://money.cnn.com/2016/11/11/investing/warren-buffett-wells-fargo-scandal/)

Thanks for linking the interview on WFC. I saw the other link on another thread, but it didn't have his WFC comments.

Still absorbing, but it's fun to watch him dodge the bank holding regulation of staying passive…
Title: Re: WFC - Wells Fargo
Post by: Jurgis on November 11, 2016, 02:31:21 PM
I thought Buffett answers were weak. I guess part of it is him trying to convince regulators that he's passive. But part is what people call him hypocrite about. He pretty much says that things he said in the past don't apply here ... well just because ... a lot of wiggling ... he's a passive investor and he doesn't want to sell his stake... (and possibly with a tons of cash he doesn't want to have even more cash without having good ideas where to put it).

Personally I don't care much whether he changes his positions (and finds rationalizations why current situation is different than the ones he discussed in the past). However, I have to remember not to take his statements at full value, since he might just shift out of them in the future.

Edit: I wonder if it wasn't better for him to continue the silence (and just tell the interviewer that he won't touch the topic because he's passive investor). Also "passive" my ass: he calls Stumpf and he has new CEO come and talk to him... yeah, he says he did not tell them what to do, but still "passive"???

Disclosure: I am long BRK and some banks, but not WFC at this moment.
Title: Re: WFC - Wells Fargo
Post by: VersaillesinNY on November 11, 2016, 05:58:04 PM
I find that Buffett's interview was brilliant and diplomatic.

1/ He tries to protect BRK shareholders interests by not selling a great asset.

2/ He calls John Stumpf to pass a clear message: 'I don't think you've gotten the gravity of the situation' while remaining silent towards the board of directors; keeping his passive investor’s commitment with regulators.

3/ He sticks to his and Munger’s core principles, values and lessons learned:

-   incentives have terrific power to do good and bad things, but wrong incentives produces perverse behavior to what you intended.

-   An ounce of prevention is worth a pound of cure.

-   Get it right, get it fast, get it out, get it over.

4/ He remains optimistic on WFC future and leadership; it was classic Buffett.
Title: Re: WFC - Wells Fargo
Post by: Astrea on November 14, 2016, 08:03:15 AM
Great interview. If you cut out the noise as WB does: there was an incentive; it was flawed; so people did bad things; CEO sucked his thumb. Now there's a new CEO and the incentive is off the table. Has there been a permanent impairment in WFC's intrinsic value? I'm with Warren on this one.
Title: Re: WFC - Wells Fargo
Post by: undervalued on November 14, 2016, 09:46:06 AM
Although WFC was a big investment for BRK. It's now much smaller compare to his cash built up and his most recent big deal (PCP).

And to compare it to most of us, our investment portfolio is much bigger than what we earn right now either through work or business. While BRK can wait out any mistakes for not selling or buying WFC, most of us cannot. I guess most of the people are waiting for his comments to coattail him and by the time he did, most of the discount already disappear.
Title: Re: WFC - Wells Fargo
Post by: Viking on November 16, 2016, 11:42:15 AM
So Wells Fargo is trading about where it was before the account opening scandal hit the end of Aug (stock is trading about 2% higher today).

What has changed in the the US in the last 3 months?
- Trump wins election
- 10  and 30 year bond yields are up about 65 and 75 basis points
- Dec rate hike is 100%
- two rate hikes next year likely
- Elizabeth Warren is out
- Regulatory bodies leadership will shift to more pro bank (from rabid anti bank)
- we have likely seen peak regulation in 2016 from a cost perspective; as these costs fall the bottom line will improve
- Decent chance Dodd Frank gets diluted
- corporate tax rate likely to fall which will increase profits
- capital return likely to get larger
- sentiment in the big banks is improving and will only improve further
- Jeff Gundlach likes financials right now: http://finance.yahoo.com/news/gundlach-says-trump-presidency-bumpy-220927903.html;_ylt=AwrTHRozuyxYfEAAYYVXNyoA;_ylu=X3oDMTEybHZmMnM2BGNvbG8DZ3ExBHBvcwMxBHZ0aWQDQjE4NzlfMQRzZWMDc2M-

Is Wells Fargo not a screaming buy right now looking out 24 months? The scandal will be long forgotten by then. They will be earning record profits, capital return will be massive, big banks will be cool again and pe multiple wil be high. Mr Market moves from one extreme emotion to the other. Big banks were hated just a couple of years ago. My guess is they will be loved in a couple of years. There is a $20 bill lying on the street right now for those who want to pick it up....
Title: Re: WFC - Wells Fargo
Post by: BRK7 on November 16, 2016, 12:00:03 PM
So Wells Fargo is trading about where it was before the account opening scandal hit the end of Aug (stock is trading about 2% higher today).

What has changed in the the US in the last 3 months?

- Elizabeth Warren is out


I don't disagree with the general thrust of your post, but I am confused by your statement that Elizabeth Warren is out.  How so?
Title: Re: WFC - Wells Fargo
Post by: Viking on November 16, 2016, 12:17:44 PM
With the Democrats in power Warren was given free reign to hammer on the big banks, which she did frequently. She was constantly harping on the various regulatory bodies to take a harder stance on the big banks (you pick the issue). Reminds me of the line "to some people everything looks like a nail". When it came to big banks Warren hammered every chance she got.

There was some talk during the primaries that she was a candidate to be VP. If Clinton had won the White House I have no doubt that Warren would have been given a key post and it would not have been good for the big banks: more regulation, higher capital constraints and lots more negative press.

She will still be in Washington but with a lesser role and much reduced power base.

The crazy thing is all of the banking regulations put in place since 2010 have made US banks the strongest in the world. As the pendulum swings the other way (less regulation) their profitability will only improve.

I just think there are lots of tail winds for the big banks right now. And, yes, it will take years for them to play out so patience will be required.   
Title: Re: WFC - Wells Fargo
Post by: BRK7 on November 16, 2016, 01:05:44 PM
With the Democrats in power Warren was given free reign to hammer on the big banks, which she did frequently. She was constantly harping on the various regulatory bodies to take a harder stance on the big banks (you pick the issue). Reminds me of the line "to some people everything looks like a nail". When it came to big banks Warren hammered every chance she got.

There was some talk during the primaries that she was a candidate to be VP. If Clinton had won the White House I have no doubt that Warren would have been given a key post and it would not have been good for the big banks: more regulation, higher capital constraints and lots more negative press.

She will still be in Washington but with a lesser role and much reduced power base.

The crazy thing is all of the banking regulations put in place since 2010 have made US banks the strongest in the world. As the pendulum swings the other way (less regulation) their profitability will only improve.

I just think there are lots of tail winds for the big banks right now. And, yes, it will take years for them to play out so patience will be required.   

Thanks for the clarifying reply.  Again, I basically agree with your thesis, but I would add one contrary point:

You mention that the US banks are the strongest in the world.  I can't say that for sure, but I would say that US banks do appear to be significantly overcapitalized.  An overcapitalized bank is, all else being equal, a less-risky bank, and therefore a bank deserving of a multiple that reflects this reduced risk.  A less well-capitalized bank may be more profitable in terms of returns on capital, but I would argue that the associated increased risk merits a more modest multiple. 

Having said all this, I would expect that the myriad factors you list likely will outweigh the issue I've raised.
Title: Re: WFC - Wells Fargo
Post by: rb on November 16, 2016, 01:35:09 PM
You guys make some valid points.

Personally I'm not sure how enthusiastic I am about bank deregulation. As some pointed it made the banks strong by making them more boring. But it also made the whole system strong. I don't really have a problem with that. Deregulation will make the banks more profitable. But it will make the system weaker. You can say, oh I'll invest in something like Wells which has good risk management. But how long until the happy boys at Citi come up with some brilliant idea of how to use the balance sheet to so x,y,z dangerous things?

Moreover, regulation and deregulation are singular events. The gains and losses are front loaded. You loose or gain if you are a shareholder at the point in time when it happens. After that the multiple adjusts and that renders the bank's profitability meaningless. So as someone who owns a lot of WFC stock I'm glad I get a windfall. But after that I am more reluctant rather than enthusiastic about long term ownership.
Title: Re: WFC - Wells Fargo
Post by: onyx1 on November 16, 2016, 03:48:07 PM
So Wells Fargo is trading about where it was before the account opening scandal hit the end of Aug (stock is trading about 2% higher today).

What has changed in the the US in the last 3 months?
- Trump wins election
- 10  and 30 year bond yields are up about 65 and 75 basis points
- Dec rate hike is 100%
- two rate hikes next year likely
- Elizabeth Warren is out
- Regulatory bodies leadership will shift to more pro bank (from rabid anti bank)
- we have likely seen peak regulation in 2016 from a cost perspective; as these costs fall the bottom line will improve
- Decent chance Dodd Frank gets diluted
- corporate tax rate likely to fall which will increase profits
- capital return likely to get larger
- sentiment in the big banks is improving and will only improve further
- Jeff Gundlach likes financials right now: http://finance.yahoo.com/news/gundlach-says-trump-presidency-bumpy-220927903.html;_ylt=AwrTHRozuyxYfEAAYYVXNyoA;_ylu=X3oDMTEybHZmMnM2BGNvbG8DZ3ExBHBvcwMxBHZ0aWQDQjE4NzlfMQRzZWMDc2M- (http://finance.yahoo.com/news/gundlach-says-trump-presidency-bumpy-220927903.html;_ylt=AwrTHRozuyxYfEAAYYVXNyoA;_ylu=X3oDMTEybHZmMnM2BGNvbG8DZ3ExBHBvcwMxBHZ0aWQDQjE4NzlfMQRzZWMDc2M-)

Is Wells Fargo not a screaming buy right now looking out 24 months? The scandal will be long forgotten by then. They will be earning record profits, capital return will be massive, big banks will be cool again and pe multiple wil be high. Mr Market moves from one extreme emotion to the other. Big banks were hated just a couple of years ago. My guess is they will be loved in a couple of years. There is a $20 bill lying on the street right now for those who want to pick it up....

And, if you are a US taxpayer and hold on to a position with embedded gains, you are likely to enjoy a lower personal capital gains tax rate when you finally sell.
Title: Re: WFC - Wells Fargo
Post by: Viking on November 16, 2016, 05:15:18 PM
Wells Fargo Treasurer (very well spoken) presented at the Bank of America Financials conference. Great financial overview of the company. The Q&A covered all the current topics. An hour well spent for anyone interested in investing in Wells. https://www.wellsfargo.com/about/investor-relations/events/

Lots of banks presenting at this conference... Opportunity to get timely updates on most topics.
Title: Re: WFC - Wells Fargo
Post by: meiroy on November 17, 2016, 04:13:10 AM


And, if you are a US taxpayer and hold on to a position with embedded gains, you are likely to enjoy a lower personal capital gains tax rate when you finally sell.

Interesting. So, does that mean there will be some selling pressure at the beginning?
Title: Re: WFC - Wells Fargo
Post by: onyx1 on November 17, 2016, 04:26:57 AM

And, if you are a US taxpayer and hold on to a position with embedded gains, you are likely to enjoy a lower personal capital gains tax rate when you finally sell.

Interesting. So, does that mean there will be some selling pressure at the beginning?

In case my post was unclear, I meant that I expect a lower personal capital gains tax rate to be a part of a future tax bill.  Timing unknown, but appears likely in the next year.  If you have a WFC position with embedded gains today, all else equal, it will pay to wait to enjoy the lower rate.
Title: Re: WFC - Wells Fargo
Post by: alpha23 on November 17, 2016, 06:41:35 AM
Wells Fargo Treasurer (very well spoken) presented at the Bank of America Financials conference. Great financial overview of the company. The Q&A covered all the current topics. An hour well spent for anyone interested in investing in Wells. https://www.wellsfargo.com/about/investor-relations/events/

Lots of banks presenting at this conference... Opportunity to get timely updates on most topics.

Thanks for sharing this - excellent presentation and Q / A. 
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on December 01, 2016, 08:43:18 AM
WFC is down slightly YTD. The economy, interest rates, inflation, credit markets all look better than Jan 1. WFC would also benefit from any deregulation or tax cuts that Republicans implement.

I am really itching to buy more warrants. Am I crazy?
Title: Re: WFC - Wells Fargo
Post by: kab60 on December 01, 2016, 08:47:13 AM
I don't think so. I loaded up on the common mid 40 but consider buying more. I just hate buying after it has run up, but I think that's a mental flaw I should get over.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on December 01, 2016, 09:00:24 AM
I don't think so. I loaded up on the common mid 40 but consider buying more. I just hate buying after it has run up, but I think that's a mental flaw I should get over.

Update: Bought a bit more. I will turn in my value investor card now.


Title: Re: WFC - Wells Fargo
Post by: chrispy on December 01, 2016, 09:15:52 AM
I am re-reading the Intelligent Investor and I believe WFC currently satisfies all of Graham's criteria.  It is nearing the <15P/E requirement though.  Not cheap but not astronomical.

Must say, I expected the pessimism from the phony accounts to last a little longer...
Title: Re: WFC - Wells Fargo
Post by: rb on December 01, 2016, 10:29:29 AM
I don't think so. I loaded up on the common mid 40 but consider buying more. I just hate buying after it has run up, but I think that's a mental flaw I should get over.

Update: Bought a bit more. I will turn in my value investor card now.
I started buying last year around 53 kept buying down to the mid 40s. I have the same hesitation to buy a stock after a run-up. But I thought it was decently priced at 53 and the only thing that's changed since is the scandal. So I really shouldn't think that it's expensive at 54. Gotta keep things in perspective.

Now for the ones that didn't buy it in the 40s, that's called thumb-sucking  ;)
Title: Re: WFC - Wells Fargo
Post by: Viking on December 01, 2016, 11:35:14 AM
The story for the banks just keeps getting better. Bond yields keep motoring higher (10 year is now at 2.45%). Trump picks for the various government jobs are pro-bank. OPEC deal is bullish for oil prices which should result in higher inflation which should lead to further increases in interest rates. The US economy continued to roll along. Consumer confidence numbers are rebounding. For bank investors it kind of feels like a Disney movie.

For those who are way overweight bank stocks in their portfolio the question becomes when to lighten up? Personally I find the sell decision the most challenging part of investing. Over the years I have sold lots of positions for decent gains and many have kept going up to nosebleed levels. Trying to be a little more patient on the sell side, especially in situations where the story is getting better at the same time the stock is going up in price. Yes, a good problem to have. :-)

The challenge right now is, given all the moving parts, trying to understand what earnings for the big banks will look like in 2017 and 2018. If interest rates stay high I think most current estimates are way low. As analysts start adjusting earnings upwards bank share prices should benefit further.
Title: Re: WFC - Wells Fargo
Post by: RadMan24 on December 01, 2016, 05:46:48 PM
The story for the banks just keeps getting better. Bond yields keep motoring higher (10 year is now at 2.45%). Trump picks for the various government jobs are pro-bank. OPEC deal is bullish for oil prices which should result in higher inflation which should lead to further increases in interest rates. The US economy continued to roll along. Consumer confidence numbers are rebounding. For bank investors it kind of feels like a Disney movie.

For those who are way overweight bank stocks in their portfolio the question becomes when to lighten up? Personally I find the sell decision the most challenging part of investing. Over the years I have sold lots of positions for decent gains and many have kept going up to nosebleed levels. Trying to be a little more patient on the sell side, especially in situations where the story is getting better at the same time the stock is going up in price. Yes, a good problem to have. :-)

The challenge right now is, given all the moving parts, trying to understand what earnings for the big banks will look like in 2017 and 2018. If interest rates stay high I think most current estimates are way low. As analysts start adjusting earnings upwards bank share prices should benefit further.

Well, you have the dividends which are at reasonable levels of payouts. Earnings may fluctuate, but your main concern here is that loans and derivatives don't blow up. In essence, there isn't much else to buy and frankly, banks have been hated on for a long time and now their prospects are beginning to brighten. Why not see how the ride goes, but just ensure you keep aware of any leaks that might blow up down the road, like over exuberance amongst the bankers themselves...my thoughts at least.

P.S. Thanks for the heads up on the Q/A Viking
Title: Re: WFC - Wells Fargo
Post by: dutchman on December 10, 2016, 05:06:24 AM
Is it sensible to keep holding at this level?  It was trading even higher a year ago, but Im worried that theyve lost their pristine reputation.  Also to what extent will a trump admin ease the regulatory backlash?   Theres a new story about how wells was signing up ppl for prudential insurance without telling them!! Such assho**s.
Title: Re: WFC - Wells Fargo
Post by: Dynamic on December 10, 2016, 11:06:33 AM
For my sell strategy I guess it's a call whether the investment thesis has changed and the company is significantly different from what you thought it was.

To me, I think it's close enough that I'd hold. I guess if it were a large position, I'd be more nervous.

Yes, I'm somewhat concerned about the reputation damage, but I'm thinking it doesn't outweigh a lot of people's positive impressions (especially compared to certain other banks) and their generally sound banking practices, plus a likely friendlier regulatory environment in the near future. It's about 20% up on my May 2016 buy price plus dividends but still not very expensive.

Long term shareholder return positives:
The buyback program (1.4% bought back in last 6 months or so);
Dividends ($1.52/yr and likely to grow at a comfortable rate per share that should support an increasing stock price over time in the same way that the reducing share count will boost EPS and BVPS and do the same)

These are encouraging for shareholder returns, and at current prices, I still think buybacks are value-enhancing even if less so than when it was priced in the $40s.

For now, I'm happy to hold and unless something changes I'd sell in the near term only if I had a very much cheaper buying opportunity in another stock, especially a high conviction position. My direct exposure is 5.3%, but my total exposure is about 9.5% including my share of Berkshire Hathaway's holdings, and I'm happy with this level at this price. Bear in mind I tend to run a VERY concentrated portfolio by most people's standards, so I consider this modest exposure even if it's my 3rd largest position.

I don't know if this makes me a fool or not, but that's my personal thinking. Your mileage may vary.
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on January 13, 2017, 05:13:16 AM
Q4 results out, $0.96 EPS versus $1 expected.
Title: Re: WFC - Wells Fargo
Post by: Ballinvarosig Investors on January 13, 2017, 06:24:00 AM
Q4 results out, $0.96 EPS versus $1 expected.
I was initially a little annoyed, but going into the detail, I am more optimistic. Earnings would have been $1.03 but for some currency hedging exercise that went wrong. Someone dropped the ball there, but it's fixable. The important thing is that deposits and loans are both up - all the scaremongering about customers deserting Wells turned out to be just that.
Title: Re: WFC - Wells Fargo
Post by: rb on January 13, 2017, 06:41:39 AM
Q4 results out, $0.96 EPS versus $1 expected.
I was initially a little annoyed, but going into the detail, I am more optimistic. Earnings would have been $1.03 but for some currency hedging exercise that went wrong. Someone dropped the ball there, but it's fixable. The important thing is that deposits and loans are both up - all the scaremongering about customers deserting Wells turned out to be just that.
Yep and judging by the open that expectation estimate was off.
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on January 13, 2017, 07:18:36 AM
Someone dropped the ball there, but it's fixable.

I don't think that is an accurate description. I think this is more akin to a mark-to-market loss. In some ways, this is just unwinding gains they made earlier in the year. WFC knows the hedges aren't perfect. But when you look at how stable their earnings are, I would say the hedges are very effective over time.
Title: Re: WFC - Wells Fargo
Post by: DooDiligence on January 13, 2017, 08:22:03 AM
A short term earnings miss with a long term float (too bad there's no pullback for anyone wanting to add big...)
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on January 24, 2017, 10:03:25 AM
...why...


Bank branches were given a heads up before Wells Fargo’s internal monitors landed for inspections.  Branch employees in the retail bank used notice periods of 24 hours to 72 hours to falsify records and forge customer signatures
http://www.wsj.com/articles/at-wells-fargo-bank-branches-were-tipped-off-to-inspections-1485253800 (http://www.wsj.com/articles/at-wells-fargo-bank-branches-were-tipped-off-to-inspections-1485253800)
Title: Re: WFC - Wells Fargo
Post by: rb on March 28, 2017, 03:59:54 PM
$110 Million settlement for the fake accounts. Not bad.

https://www.bloomberg.com/news/articles/2017-03-28/wells-fargo-reaches-110-million-settlement-over-fake-accounts
Title: Re: WFC - Wells Fargo
Post by: SlowAppreciation on April 12, 2017, 04:19:26 PM
https://www.wsj.com/articles/berkshire-hathaway-to-sell-nine-million-wells-fargo-shares-1492034950
Title: Re: WFC - Wells Fargo
Post by: rb on April 12, 2017, 06:23:17 PM
Yes it seems like the talks with the Fed did not go well. I'm guessing that they have to sell some stock to make room for WFC buybacks.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on April 12, 2017, 08:06:40 PM
So the more wells buy back stock, the more web has to sell?!
That's rediculus!
Title: Re: WFC - Wells Fargo
Post by: rb on April 12, 2017, 08:08:23 PM
Basically... or he goes over the 10% threshold. So they basically have to sell 10% of the WFC buyback.
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on April 13, 2017, 03:40:32 AM
Maybe part of the reason WFC stock has been under pressure the last two days. Not complaining I have taken advantage and written some puts.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on April 13, 2017, 07:36:22 AM
So the more wells buy back stock, the more web has to sell?!
That's rediculus!

I tried to read up a bit what this was about, and I found Comptrollers Licensing Manual: Change in Bank Control, Washington DC, 2007 (https://www.occ.gov/publications/publications-by-type/licensing-manuals/cbca.pdf). Especially the considerations on p. 5 & 6 makes sense to me, and naturally apply also to Berkshire with regards to WFC.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on April 13, 2017, 07:43:20 AM
Another half of a billion to the pile!
Title: Re: WFC - Wells Fargo
Post by: rb on April 13, 2017, 08:44:13 AM
Yea, stock's getting smacked today.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on April 13, 2017, 10:24:14 AM
Added today.
I like to buy when there's a forced seller  :P
Title: Re: WFC - Wells Fargo
Post by: Viking on April 13, 2017, 10:42:30 PM
The next year for WFC will be bumpy. Expenses in the most recent quarter came in quite high and management confirmed costs will remain elevated for the near term. It would not be surprising for regulators to give WFC a fail on the qualitative aspect of CCAR and regulators may find more to be unhappy about. This will result in minimal profit growth over the next year.

The good news is it looks to me like the issues WFC is facing are largely transitory. Looking out to next year we should see WFC put the retail sales scandal behind it, expenses should come down and regulatory headwinds should relax. We should see the strength of its businesses come through. WFC will be hosting an investor day in May and said on the quarterly conference call they will be presenting a plan to get their expense ratio back in line; this will be an important test for management.

With the stock closing today at $51.35 lots of the bad news looks to be baked in. Looking out 12 months lots of potential tail winds to drive the stock higher.
Title: Re: WFC - Wells Fargo
Post by: walkie518 on April 14, 2017, 11:33:00 AM
I have first hand knowledge that the other big banks (and small banks) have been eating Wells' lunch ... over the last year or two, I've seen a slowdown in what and how they lend to existing clients.  How Wells handles credit has also changed (likely in light of the fake cards) that has gotten in the way of allowing me to open accounts I have wanted opened.

Mortgage origination was worse than expected...  JP Morgan, on the other hand, has outperformed on this front.

A buyer today might see this as an opportunity to deploy in light of the Berkshire sales.  At the same time, since the election, bank stocks have knocked the cover off of the ball.  Will there be some mean reversion as less of what was promised takes longer and longer to come to fruition, if at all? 

Over the next decade, owning WFC seems like a no-brainer, but I would argue there might be a number of short-term catalysts to the downside.
Title: Re: WFC - Wells Fargo
Post by: Viking on April 15, 2017, 09:05:57 PM
Walkie, I agree Wells is facing a number of short term headwinds:
1.) incremental costs associated with retail sales scandal
2.) incremental costs to satisfy regulators (they seem to be behind the curve on this compared to the other big banks)
3.) do they pass living will with resubmission
4.) do they fail upcoming CCAR on qualitative side; if so does this impact capital return in 2017-18?
5.) when do expenses come back down? 2018? Or will it be 2019?
6.) how good is the new leadership? How good is Tim Sloan?

In the next 6 months what happens to the yield on 10 year treasuries will also be important. Today they are at 2.25% which appears crazy low. If 10 year girls move higher (closer to 2.6%) then this will provide Wells with some breathing room with elevated expenses.

I think the May investor day will be quite important as it will provide some incremental answers to the above questions.

Title: Re: WFC - Wells Fargo
Post by: Spekulatius on April 16, 2017, 04:48:16 AM
Walkie, I agree Wells is facing a number of short term headwinds:
1.) incremental costs associated with retail sales scandal
2.) incremental costs to satisfy regulators (they seem to be behind the curve on this compared to the other big banks)
3.) do they pass living will with resubmission
4.) do they fail upcoming CCAR on qualitative side; if so does this impact capital return in 2017-18?
5.) when do expenses come back down? 2018? Or will it be 2019?
6.) how good is the new leadership? How good is Tim Sloan?

In the next 6 months what happens to the yield on 10 year treasuries will also be important. Today they are at 2.25% which appears crazy low. If 10 year girls move higher (closer to 2.6%) then this will provide Wells with some breathing room with elevated expenses.

I think the May investor day will be quite important as it will provide some incremental answers to the above questions.

I also expect a significant increase in provisioning down the road, especially if interest rates keep rising. Right now, provisioning is very low/nonexistent. I expect that most of the windfall from higher interest rates will go into provisioning expenses.I don't think they WFC at 13x earnings is such a bargain here, especially at this point in the cycle.
Title: Re: WFC - Wells Fargo
Post by: Viking on April 16, 2017, 11:45:41 AM
Spekulatius, are you anticipating a US recession? I like to follow calculated risk blog to help me understand how the US economy is performing; currently he is forecasting GDP growth in 2017 of mid to high 2%. The link provides a Q1 update to his 10 economic questions: http://www.calculatedriskblog.com/search?updated-max=2017-04-12T21:14:00-04:00&max-results=10

The wild cards are interest rates and Trump. My guess is 10 year treasuries at 2.25% are close to bottoming; should 10 year yields move higher (back towards 2.6% or perhaps even higher closer to 3% as Gundlach has discussed) then Wells Fargo will be in position to grow NII even more (as it reinvests at higher yields). Expectations regarding Trump have also come way down over the past month. I think Trump will find a way to deliver on a few of his promises and this will be positive for sentiment later in the year.

My guess is as long as the US economy continues to chug along WFC will continue to earn +$5 billion per year. The dividend yields 3% and they will repurchase 2% of shares outstanding over the next 12 months and tangible book value should grow 5-7%.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on April 16, 2017, 01:49:57 PM
I don't expect a recession in 2017 but perhaps in 2018 or 2019. In any case, I think we are getting closer to the end of this economic upcycle. The zero LL provisions that many banks have been experiencing are not sustainable and at some point, the LL provisioning habe to normalize, even if we do not have a recession.

The scenario that you are providing for WFC with a 3% dividend, 2 % buybacks and perhaps a 5% book value growth only provides about a 10% annual  appreciation potential. For a best case scenario, that I rather slim, imo.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on April 17, 2017, 11:56:20 AM
Added today.
I like to buy when there's a forced seller  :P

http://mobile.reuters.com/article/idUSKBN17J1BQ

disclaimer: i am not the CEO nor chairman (although it appears he bought last week too!) haha
Title: Re: WFC - Wells Fargo
Post by: cmlber on April 17, 2017, 01:25:34 PM
I don't expect a recession in 2017 but perhaps in 2018 or 2019. In any case, I think we are getting closer to the end of this economic upcycle. The zero LL provisions that many banks have been experiencing are not sustainable and at some point, the LL provisioning habe to normalize, even if we do not have a recession.

Since 1980 WFC is up about 50x, excluding dividends, despite several recessions.

If you normalize LL provisions for a 20-30 year average, you get EPS around $3.70/share, if 2/3 of that get's returned to shareholders you're getting ~5% distributed annually through buybacks and dividends and the 1/3 of earnings that is retained should grow EPS by 5-7% (simple math, retain 35%, earn a ROIC of 15-20%, 35% x 15-20% = 5.25%-7%).  So you're getting a long run 10-12% IRR on a safe business when 10 year treasuries are yielding 2.3%.  Sure, you will not make 10x your money on WFC in a short period of time, but you will do very well over an extended period of time.

Either 10 year treasuries are wildly overpriced, or WFC is wildly underpriced.  And if it's 10 year treasuries that are wildly overpriced, WFC's earnings/ROE/multiple are all likely to rise. 
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on April 18, 2017, 04:58:26 AM
I don't expect a recession in 2017 but perhaps in 2018 or 2019. In any case, I think we are getting closer to the end of this economic upcycle. The zero LL provisions that many banks have been experiencing are not sustainable and at some point, the LL provisioning habe to normalize, even if we do not have a recession.

Since 1980 WFC is up about 50x, excluding dividends, despite several recessions.

If you normalize LL provisions for a 20-30 year average, you get EPS around $3.70/share, if 2/3 of that get's returned to shareholders you're getting ~5% distributed annually through buybacks and dividends and the 1/3 of earnings that is retained should grow EPS by 5-7% (simple math, retain 35%, earn a ROIC of 15-20%, 35% x 15-20% = 5.25%-7%).  So you're getting a long run 10-12% IRR on a safe business when 10 year treasuries are yielding 2.3%.  Sure, you will not make 10x your money on WFC in a short period of time, but you will do very well over an extended period of time.

Either 10 year treasuries are wildly overpriced, or WFC is wildly underpriced.  And if it's 10 year treasuries that are wildly overpriced, WFC's earnings/ROE/multiple are all likely to rise.

And why WFC is my second largest position. Although a distant second to BRK!
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on April 26, 2017, 06:40:34 AM
CNN Money: Outburst by angry Wells Fargo shareholder halts annual meeting (http://money.cnn.com/2017/04/25/investing/wells-fargo-shareholder-meeting/).

Participation in the meeting appears to have been entertaining.
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on May 05, 2017, 12:11:10 PM
WFC $33 Jan 2019 calls are trading at:  $22.00 - $22.65
WFC Oct 2018 warrants are trading at:  $21.72

However, the warrants will be worth 1.01 shares/warrant by expiration.

Essentially, write a WFC $33 Jan 2019 call and purchase the warrants with that funds received. You should end up with the excess value of the 1 free share per call you write (or nothing at all) while putting negative money to work (premium from writing calls should exceed cost of warrants today - change the mix however you prefer). By the time the warrants mature, their strike price should be in the $33.25 - $33.45 range, assuming the stock price is relatively flat.

I will not do this but figured I'd share.
Title: Re: WFC - Wells Fargo
Post by: bobp on May 05, 2017, 12:49:25 PM
Something to keep in mind with all the tarp warrants - the extra .01 shares that the warrant controls is not "free". The terms are not 1 warrant plus the strike buys 1.01 shares. The warrant will control 1.01 shares at the strike times 1.01. It's still the strike PER share. Confusing, but you pay for the additional shares with all the tarp warrants. The extra still increases the warrant value by the .01 times the amount in the money. Not as valuable as the extra at no cost.

And, I could be wrong. But I'm pretty sure this is correct.

WFC $33 Jan 2019 calls are trading at:  $22.00 - $22.65
WFC Oct 2018 warrants are trading at:  $21.72

However, the warrants will be worth 1.01 shares/warrant by expiration.

Essentially, write a WFC $33 Jan 2019 call and purchase the warrants with that funds received. You should end up with the excess value of the 1 free share per call you write (or nothing at all) while putting negative money to work (premium from writing calls should exceed cost of warrants today - change the mix however you prefer). By the time the warrants mature, their strike price should be in the $33.25 - $33.45 range, assuming the stock price is relatively flat.

I will not do this but figured I'd share.
Title: Re: WFC - Wells Fargo
Post by: Green King on May 05, 2017, 01:08:38 PM
Something to keep in mind with all the tarp warrants - the extra .01 shares that the warrant controls is not "free". The terms are not 1 warrant plus the strike buys 1.01 shares. The warrant will control 1.01 shares at the strike times 1.01. It's still the strike PER share. Confusing, but you pay for the additional shares with all the tarp warrants. The extra still increases the warrant value by the .01 times the amount in the money. Not as valuable as the extra at no cost.

And, I could be wrong. But I'm pretty sure this is correct.

WFC $33 Jan 2019 calls are trading at:  $22.00 - $22.65
WFC Oct 2018 warrants are trading at:  $21.72

However, the warrants will be worth 1.01 shares/warrant by expiration.

Essentially, write a WFC $33 Jan 2019 call and purchase the warrants with that funds received. You should end up with the excess value of the 1 free share per call you write (or nothing at all) while putting negative money to work (premium from writing calls should exceed cost of warrants today - change the mix however you prefer). By the time the warrants mature, their strike price should be in the $33.25 - $33.45 range, assuming the stock price is relatively flat.

I will not do this but figured I'd share.

I recall reading language allowing cashless exercise.
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on May 05, 2017, 01:15:57 PM
@GreenKing - There's definitely cashless exercise and I think it's pretty crucial for this being interesting. Otherwise market risk would probably kill any arb bips.

Something to keep in mind with all the tarp warrants - the extra .01 shares that the warrant controls is not "free". The terms are not 1 warrant plus the strike buys 1.01 shares. The warrant will control 1.01 shares at the strike times 1.01. It's still the strike PER share. Confusing, but you pay for the additional shares with all the tarp warrants. The extra still increases the warrant value by the .01 times the amount in the money. Not as valuable as the extra at no cost.

And, I could be wrong. But I'm pretty sure this is correct.

Helpful clarification, thanks. Investors are definitely only entitled to the excess value of that 0.01 share.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on May 08, 2017, 07:07:22 PM
http://in.reuters.com/article/milken-conference-wells-fargo-idINL1N1I319I

"When you put your shareholders first – I hope Warren Buffett isn't listening by the way – but when you put them first, then you're going to make mistakes. Because you're going to make short-term decisions that aren't focused on creating a long-term, successful company," Sloan said.

--
This sounds to me a stupid things for Sloan to say. They made a mistake, and now they blame shareholder? How did shareholder benefit from all this? This new CEO doesn't seem very shareholder friendly.
Title: Re: WFC - Wells Fargo
Post by: Jurgis on May 08, 2017, 09:14:58 PM
http://in.reuters.com/article/milken-conference-wells-fargo-idINL1N1I319I

"When you put your shareholders first – I hope Warren Buffett isn't listening by the way – but when you put them first, then you're going to make mistakes. Because you're going to make short-term decisions that aren't focused on creating a long-term, successful company," Sloan said.

--
This sounds to me a stupid things for Sloan to say. They made a mistake, and now they blame shareholder? How did shareholder benefit from all this? This new CEO doesn't seem very shareholder friendly.

Wow, that does sound like a stupid soundbyte. Were they really pushing the millions of fake accounts because of some shareholder-focus? Not their own bonus-focus? Really?
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on May 09, 2017, 07:09:07 AM
"When you put your shareholders first – I hope Warren Buffett isn't listening by the way – but when you put them first, then you're going to make mistakes. Because you're going to make short-term decisions that aren't focused on creating a long-term, successful company," Sloan said.

--
This sounds to me a stupid things for Sloan to say. They made a mistake, and now they blame shareholder? How did shareholder benefit from all this? This new CEO doesn't seem very shareholder friendly.

Yes, it is incredibly stupid. Perhaps some shareholders aren't focused on creating a long-term, successful company. But most are. And if management makes short-term decisions to please wall street analysts, they aren't acting that way because they are putting shareholders first. They are acting that way because they are putting management's job security first.
Title: Re: WFC - Wells Fargo
Post by: DCG on May 09, 2017, 08:32:43 AM
Well, he's right in that their main focus should be on their customers and not shareholders, but definitely a poor choice of words.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on May 09, 2017, 02:29:12 PM
Well, he's right in that their main focus should be on their customers and not shareholders, but definitely a poor choice of words.

That is about what disquingishes a CEO - from a CEO.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on May 11, 2017, 08:23:11 AM
So now Berkshire holds less than 10% of WFC total shares outstanding, does that mean Buffett doesnt have to be restricted to a "passive investor"? He perhaps is now allowed to give some influence to the board, perhaps starting with giving out less stock compensation to employees (33mn shares just in Q1 2017)  and maybe take a board seat?
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on May 15, 2017, 07:10:31 PM
https://finance.yahoo.com/news/philly-throws-another-punch-wells-185950148.html
Title: Re: WFC - Wells Fargo
Post by: Viking on May 15, 2017, 08:14:29 PM
I was disappointed with Wells Fargo investor day. Costs will remain elevated into 2019; there seems to be little urgency to deal with elevated expense ratio. Revenue growth will also be low.

They also issue a large amount of new shares every year as part employee compensation. This dilution offsets a little more than half of all buybacks they do as part of their capital return program. As a result shares outstanding only fall by about 2% per year.

US banking continues to be my favourite sector currently. Hard to see a good reason to hold WFC today over the other large US banks.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on May 15, 2017, 08:30:15 PM
I was disappointed with Wells Fargo investor day. Costs will remain elevated into 2019; there seems to be little urgency to deal with elevated expense ratio. Revenue growth will also be low.

They also issue a large amount of new shares every year as part employee compensation. This dilution offsets a little more than half of all buybacks they do as part of their capital return program. As a result shares outstanding only fall by about 2% per year.

US banking continues to be my favourite sector currently. Hard to see a good reason to hold WFC today over the other large US banks.

I agree with you, but i added more today. The valuation is too cheap
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on May 31, 2017, 08:49:39 AM
http://www.vanityfair.com/news/2017/05/wells-fargo-corporate-culture-fraud
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on May 31, 2017, 10:32:38 AM
http://www.vanityfair.com/news/2017/05/wells-fargo-corporate-culture-fraud

Met a mortgage banker who was at WFC.  Very high producer.  He left WFC for JPM, said JPM had been begging him to leave, but he didn't have a reason to.  Then the banking fraud thing happened.  He said it didn't happen to any of his customers, and thought his business would be untouched.  In the end it had such a big impact on WFC's reputation that he felt he'd never make the same commissions again and finally jumped ship.  I don't remember exact numbers, but this guy was doing something like $10-15m per year in originations.  Anecdotal point for sure, but interesting.

On the flip side this whole fraud thing might be inside baseball.  I was presenting to a bank in the Southwest as this story was all over the news.  The bank shared a building with a WFC branch on the first floor, this bank had the upper floors. I incorporated what I thought was a really witty joke about making sure the earnings generated for the bank from our product didn't come from fake accounts like the guys downstairs.  It fell flat, I had a room full of bankers staring blankly at me.  I tried to explain it, but when you're explaining a joke it's never good.
Title: Re: WFC - Wells Fargo
Post by: racemize on June 01, 2017, 05:55:32 AM
Have you gone crazy since Scott left or something?
Title: Re: WFC - Wells Fargo
Post by: DooDiligence on June 01, 2017, 05:58:11 AM
Have you gone crazy since Scott left or something?

yes, I wish he'd re-take the lead Troll position here (my meds are running out - damn you Express Scripts)
Title: Re: WFC - Wells Fargo
Post by: racemize on June 01, 2017, 06:00:20 AM
There's really no need--I have never used the ignore function, but you seem to be begging for it.
Title: Re: WFC - Wells Fargo
Post by: Valuehalla on June 06, 2017, 06:30:37 PM
Stresstest will be out on 28th June

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20170601a.htm
Title: Re: WFC - Wells Fargo
Post by: Valuehalla on June 07, 2017, 10:19:40 AM
How are your expectations concerning the dividend of WFC, when the stresstest will be out?

Can we expect an increase of the dividend?
Title: Re: WFC - Wells Fargo
Post by: Viking on June 07, 2017, 01:15:40 PM
Valuehalla, my read with CCAR is of all the big banks WFC will have the smallest increase in total payout and the smallest dividend increase. WFC has had a solid total capital return the past few years (hard to have a big increase when you already have a decent payout). A potential issue for WFC is how poorly they handles the sales account scandal (the first couple of months); perhaps they fail the qualitative side of CCAR and this results a lower amount approved for capital return. Total earnings are not growing at WFC and this also impacts capital return.

Regarding the dividend, WFC already has a very high dividend payout of over 30% (yield is a little under 3%) and the regulators are likely going to require banks to hold extra capital on payouts over 30%. The Wells CFO mentioned this on the last quarterly conference call and the implication is they be will penalized if they increase the dividend moving forward. Bottom line is WFC will likely announce only a small increase in the dividend. 
Title: Re: WFC - Wells Fargo
Post by: Valuehalla on June 07, 2017, 04:24:22 PM
Thx Viking, i share your view. With app 38 % payoutratio WFC is on the top of the big banks. I am also in BAC, they just have app. 18 % payoutratio, here is a potential for a strong improvement in dividend.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on June 15, 2017, 03:32:29 PM
Wells Fargo Is Accused of Making Improper Changes to Mortgages

https://www.nytimes.com/2017/06/14/business/wells-fargo-loan-mortgage.html (https://www.nytimes.com/2017/06/14/business/wells-fargo-loan-mortgage.html)
Title: Re: WFC - Wells Fargo
Post by: Valuehalla on June 28, 2017, 04:31:06 PM
https://www.wellsfargo.com/about/press/2017/capital-plan_0628.content
 
7,8 B dividend + 11,5 B Repurchase = 19,3 B =7,1 % of the 271,5 B Marketcap
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on June 28, 2017, 05:58:07 PM
https://www.wellsfargo.com/about/press/2017/capital-plan_0628.content
 
7,8 B dividend + 11,5 B Repurchase = 19,3 B =7,1 % of the 271,5 B Marketcap

Just nice!
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on June 28, 2017, 06:15:16 PM
https://www.wellsfargo.com/about/press/2017/capital-plan_0628.content
 
7,8 B dividend + 11,5 B Repurchase = 19,3 B =7,1 % of the 271,5 B Marketcap

Please note that this is gross repurchases. The net repurchases (after stock compensation) will be significantly lower. Over the last 4 quarters, stock issued was $3.4B.

So net yield is, 7.8B + 8B = 15.8B = 5.8% of 271.5B market cap.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on June 28, 2017, 07:48:53 PM
https://www.wellsfargo.com/about/press/2017/capital-plan_0628.content
 
7,8 B dividend + 11,5 B Repurchase = 19,3 B =7,1 % of the 271,5 B Marketcap

Please note that this is gross repurchases. The net repurchases (after stock compensation) will be significantly lower. Over the last 4 quarters, stock issued was $3.4B.

So net yield is, 7.8B + 8B = 15.8B = 5.8% of 271.5B market cap.

correct.
why WFC give out so many stock???!!!
Title: Re: WFC - Wells Fargo
Post by: Munger_Disciple on June 28, 2017, 08:22:39 PM
Quote
why WFC give out so many stock???!!!

Because their employees opened many accounts    ;D ;D
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on August 06, 2017, 10:26:55 AM
BusinessWire: Wells Fargo CEO Shares Updates on Company's Rebuilding Trust Efforts in Companywide Message (http://www.businesswire.com/news/home/20170804005632/en/Wells-Fargo-CEO-Shares-Updates-Company%E2%80%99s-Rebuilding).

To me, extraordinary - but, - to me -, Mr. Sloan is doing the exactly right thing here.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on August 06, 2017, 11:01:02 AM
 From my own experience, the management is very aggressive in addressing such issues.
Last year in Oct, after shopping between BAC, JPM, WFC and my local community bank, i got a 30yr jumbo mortgage from WFC, at 3.25% 30 yr fixed. During the application i was told i need to open a wfc checking account to get another 0.25 discount on the rate of 3.50. (BAC and JPM have the similar promotion/policy). Earlier this year, they sent me a survey about how I felt about my loan process. I added in the comment that in light of the recent news, it may not be appropriate for WFC asking me to open a checking account to get that promotion. To my surprise, i got a call from someone from the CEO office at WFC and she said the executive committee reviewed my case and she explained to me that because it was a promotional and not a requirement it's not illegal for them to do that. But they will stop doing this immediately in the future. I had no problem with their answers. Every banks have such promotions. But I was suprised that someone would actually be reading my survey and certainly not a call from the ceo office.

When i applied for mortgage, BAC was the only bank that can match WFC's rate, but that was after multiple negotiations (WFC gave me a rate once and we didnt negotiate). I am also a "platium prefered" customer of BAC and had no accounts at WFC. Eventually BAC offered me 3.15 rate but I must close within 30 days. I have heard from others that BAC in many cases can not close within 30 days and will come back to ask applicant to pay more to lock in the rate. wFC on the other hand, gave me 3.25 for 90 days. So i chose WFC.
Title: Re: WFC - Wells Fargo
Post by: Value^2 on August 22, 2017, 10:41:42 AM
With over 3.5 million phony accounts and systematic ongoing theft Wells Fargo turned out to be a 'sewer'.  I  would describe their business model as "enormously flawed."
Title: Re: WFC - Wells Fargo
Post by: Liberty on August 31, 2017, 06:08:26 AM
https://www.cnbc.com/2017/08/31/wells-fargo-there-were-nearly-twice-as-many-potentially-fake-accounts-opened-than-originally-thought.html

Quote
Wells Fargo & Co. said it uncovered nearly 70 percent more potentially unauthorized consumer and small-business accounts than originally thought after an independent investigation into a sales scandal that erupted last year.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on November 27, 2017, 11:23:11 PM
One more:

WSJ: Wells Fargo Bankers, Chasing Bonuses, Overcharged Hundreds of Clients (https://www.wsj.com/articles/wells-fargo-bankers-chasing-bonuses-overcharged-hundreds-of-clients-1511830230).

This time it is forex banking. Honestly, this is getting a bit annoying now.

Thank you to Andy for guiding me to the article.
Title: Re: WFC - Wells Fargo
Post by: rb on November 27, 2017, 11:40:20 PM
I don't have a WSJ subscription so I can't see the article but I can tell you it's a non-story. Every bank in the universe overcharges their clients on FX. Lots of their clients know it too. And yes, it helps with bonuses as well.

Also the FX market is completely unregulated. Pretty much the wild west. It's really hard to do anything illegal in FX. The worst you could do is piss off some government (not good) but most traders stay away from that sort of stuff and just overcharge clients.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on November 27, 2017, 11:58:39 PM
rb,

To put some shade on what it's about, you can visit Andys tweet (https://twitter.com/Schornack/status/935341946331127809), which actually gives full access to the WSJ article [it does to me, actually].
Title: Re: WFC - Wells Fargo
Post by: rb on November 28, 2017, 12:14:22 AM
Thanks John, the link did gave me access to the article. No surprises there. What is described are standard FX practices in the banking industry and I'm not just talking about North America but Europe as well. Not entirely sure about Asia but I don't see why it would be any different.

Furthermore, as I've said previously, most clients know about it (3G knew about it) and there really isn't anything illegal about it.

This is definitely not a Wells Fargo issue.
Title: Re: WFC - Wells Fargo
Post by: Viking on January 12, 2018, 09:43:12 AM
For the past 6 months I have been listening to the WFC conference calls and industry presentations and hoping that a few rays of sunshine will start to shine through. I have been disappointed and the call today was the same (disappointment). I appears to me that it is likely 2018 will be another lost year for shareholders where WFC will again underperform peers. Expenses will remain elevated. Revenue growth will likely be muted (compared to peers). On the call today the CEO was asked if the sales scandal issues are finally largely behind the company and the CEO said no he could not say that... leading rational people to wonder what issues will hit in 2018. I am starting to wonder if the issues at WFC go deeper and the new WFC is simply never going to match the financial results of the former WFC (low expenses and crazy high ROE). The fact that Buffett owns 10% of the company keeps pulling me back to it (to want to own it). And then I look at the business results and listen to management and get completely turned off. Their competitors like JPM just look to be so much better run and their management team sounds so much more polished on the calls and the business results of JPM will likely be much better in 2018. WFC looks like a company trying to play a great defensive game with one hand tied behind its back (sales scandal and its after effects) whereas JPM is playing Michael Jordan offense. Not hard to pick with will win the game.

It is interesting to me how over 5 and 10 years companies can rise and fall. 5 years ago WFC was clearly viewed as the best managed large US bank. I think JPM has now passed them. I think BAC could also pass WFC in the next couple of years.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on January 13, 2018, 03:08:29 PM
I read the WFC 2017Q4 documents last night, and I must say, that I'm disappointed, like Viking.

I started looking for some explanations. Especially two observations really caught my attention.

We knew that there would be some unforseen changes to taxes, because of the US Tax Reform. So I started by looking at the income statement from down and upwards, starting with profit before tax. The WFC 2017 profit before tax has actually declined vs 2016. I was really surprised by that. Searching for explanation line by line upwards, one instantly catch a large change in other non interest expenses. The figure for 2017 is USD 17.558 B vs 2016 USD 13.115 B. The difference is actually a lot compared to a pre tax profit of USD 27.377 B, down from 2016 USD 32.120 B. After reading further on and after studying the presentation material, I observed that there is a USD 3.251 B litigation accrual contained in other non interest expenses [related to the scandals and derived lawsuits] in 2017Q4. It's ugly. Every time folly and/or misconduct in a bank has been going on, the shareholders end up with the bill.

Furthermore, the loan book basically hasn't grown in 2017.  JPM reported 6 percent loan book growth for 2017, and 2 percent loan book growth 2017Q4 QoQ, indicating accelerating loan book growth. This is striking. I don't understand it yet, but I will try to seek some explanation of it in the figures. All input from fellow board members is very welcome on this. If this is about WFC loosing business relatively because of the scandals, the scandals are real calamities of enormous dimensions.

The loan book size and the size of deposits are the crank in the engine of every money machine called a bank.

- - - o 0 o - - -

I'm thinking about the WFC business model also. Is WFC going digital fast enough, and is debranching taking place at an appropriate speed?

- - - o 0 o - - -

What is it, that we are observers to here? The big four US banks constitutes a material part of the whole US banking system. Is WFC getting smoked here by JPM and BAC actually now pulling away - for good - from WFC going forward, or is this a run between three rabbits and a turtle, WFC beeing the turtle by just continuing doing its thing, and not get in trouble when the three rabbits in the future have started to stumble and lay in one big bunch on the road when the turtle passes them?

There is a material element of black box investing in bank investing related to the loan books. Those of us invested long in these creatures have been buying rubber band by the yard.
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on January 14, 2018, 07:18:32 AM
WFC closing 800 branches

http://wric.com/2018/01/12/report-wells-fargo-to-close-800-more-branches-by-2020/
Title: Re: WFC - Wells Fargo
Post by: Viking on January 14, 2018, 10:39:17 AM
I looks to me like WFC underinvested in their business pre 2016 (which drove higher short term profits). It appears they also have been slower to transition to the new digital world which suggests poor long term planning. They certainly are paying a steep price today for their mistakes. As we learned with C and BAC, it takes many years for these big super tanker banks to right the ship and it can be a painful voyage for shareholders.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on January 15, 2018, 02:29:59 PM
WFC online banking (and brokerage) GUI is less capable than that of many credit unions 1/100 their size and certainly BofA's. Their mortgage salespersons are not competitive either with respect to rates and ease of dealing with them (my personal recollection as well as that from colleagues. I think the bank is retreating probably as consequence of the reboot due to the scandals.

I would WFC to have a few years of stagnation before they can resume growing as fast as their competitors again. That will be the true cost of this scandal 3-5 years of stunted growth, not the few hundred million in fines, which are really peanuts on their income statement.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on January 15, 2018, 02:56:45 PM
Thank you to boilermaker, Viking and Spekulatius for sharing thoughts, insights & facts here about WFC.

- - - o 0 o - - -

Only partly on topic:
Right now, I don't know what to think about Berkshire being a forced WFC seller, also.
Title: Re: WFC - Wells Fargo
Post by: valueinvesting101 on February 02, 2018, 03:31:37 PM
Responding to widespread consumer abuses and compliance breakdowns by Wells Fargo, Federal Reserve restricts Wells' growth until firm improves governance and controls.

https://www.federalreserve.gov/newsevents/pressreleases/enforcement20180202a.htm
Title: Re: WFC - Wells Fargo
Post by: rb on February 02, 2018, 04:06:56 PM
WOW!!!   :o

I wonder what they did to piss off the FED so bad.
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on February 02, 2018, 04:16:03 PM
I'm a little surprised to see this in February 2018.  If the Fed wanted to do this, it should have been done in February 2017, shortly after the main control issues became public.


SJ
Title: Re: WFC - Wells Fargo
Post by: rb on February 02, 2018, 04:18:46 PM
I agree. That's why I think that Wells did something to really piss off the Fed. Maybe something to do with arrogance? That restriction looks like the Fed telling Wells to go fuck itself.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on February 02, 2018, 04:38:31 PM
These recent promotions at Berkshire HQ were just travel preparations for Mr. Buffett taking a "stint" to San Francisco! [Sorry, couldn't help it... : - ) ]

-We should get ready for some really cheap WFC shares monday.

This stinks.
Title: Re: WFC - Wells Fargo
Post by: rb on February 02, 2018, 04:41:40 PM
Not funny man, WFC is my second largest position.  >:(

That being said after this I wouldn't be surprised if uncle Warren takes a trip to the west coast and fires them all.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on February 02, 2018, 05:02:58 PM
If I knew that, I wouldn't have posted that way, rb,

WFC Announcement [2018.02.02]: Wells Fargo Commits to Satisfying Consent Order With Federal Reserve (https://newsroom.wf.com/press-release/corporate-and-financial/wells-fargo-commits-satisfying-consent-order-federal).

It has the smell of "Now!" all over it.
Title: Re: WFC - Wells Fargo
Post by: gary17 on February 02, 2018, 05:07:09 PM
nice parting gift from Jenet yellen lol
Title: Re: WFC - Wells Fargo
Post by: LC on February 02, 2018, 05:39:26 PM
They Fed has to go in and test the controls first, usually in conjunction with management and audit. Scope and impact are determined, and remedial action plans are put in place and need to be accomplished. This coukd probably be a multi year situation until the Fed is satisfied.
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on February 02, 2018, 05:40:01 PM
Not funny man, WFC is my second largest position.  >:(

That being said after this I wouldn't be surprised if uncle Warren takes a trip to the west coast and fires them all.

My second largest position also, after, you guessed it, BRK.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on February 02, 2018, 05:49:55 PM
Not funny man, WFC is my second largest position.  >:(

That being said after this I wouldn't be surprised if uncle Warren takes a trip to the west coast and fires them all.

My second largest position also, after, you guessed it, BRK.

It’s hard to justify paying more than $50/ share for this stock. I think it is a sell at $60. - totally overvalued. They are going to have the FED breathing down their neck for years, no growth, increased expenses and good people working for WF  will move to competitors for greener pastures.
Title: Re: WFC - Wells Fargo
Post by: Viking on February 02, 2018, 07:07:41 PM
This issue was discussed on the Q4 conference call: “On the call today the CEO was asked if the sales scandal issues are finally largely behind the company and the CEO said no he could not say that... leading rational people to wonder what issues will hit in 2018.” We now know why the CEO answered the way he did.

My read is WFC has been in denial since this first happened and they still must not be moving fast enough for the Fed. Stumpf blew it big time. And my guess is the new CEO has only done marginally better. The Fed looks like it got tired of WFC dragging its feet and not getting at the issue.

Compare WFC handling of this issue to how C responded when they failed CCAR the first time. When that happened to C I think the CEO said shortly after if they fail again he should be fired. C had its holy Jesus moment and spent enormous time and resources to make the internal changes the Fed wanted. I think C passed CCAR the following year with flying colours and now have a very good working relationship with the Fed.
 
Of course, this is all just a wild guess. We will know much more in the coming days and weeks. My guess is the new CEO’s days are numbered.

I am very much looking forward to hearing what Buffett thinks. He has a saying about mistakes being ok but damage a shred of a firms reputation and he will be ruthless. It looks to me like this issue has damaged more than a shred of WFC reputation.
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on February 02, 2018, 07:40:16 PM
So beyond the audit of regulatory and statute compliance that is prescribed, what does WFC do from here?

Since asset growth (loans) is limited, what measures can WFC take to continue to grow loans without growing aggregate assets?  A few ideas:

1) Return a shit ton of capital to share holders in the next CCAR round?

2) Engage in some complex sale and leaseback schemes for whatever real property that WFC might own (office towers, branches) and dividend out the money?

3) Repay/repurchase whatever debt or preferreds are out there?

4) Some sort of securitization and asset sale with the proceeds being dividended to shareholders?

5) Reduce deposit interest rates to slow the inflows and increase net interest margins?

6) Spin some assets?

7) Other ideas?


SJ
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on February 02, 2018, 07:41:17 PM
Well, Yellen is definitely not thinking about getting her mortgage refinanced!


Title: Re: WFC - Wells Fargo
Post by: rb on February 02, 2018, 08:30:55 PM
I don't think that the situation is so dire that they must cede competitive ground.

On the asset side they have 273B in short term investments and repo.  As well as 415B of investment securities. That's 688B total. Some of the short term stuff they need for liquidity. But the can pull back a lot on this 688 to make room for new loans.

On the liability side there's 94 billion in short term borrowing that can be easily replaced by deposits.

So they have room to actually run the business. The regulatory action was a wake up call delivered with an air horn though.
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on February 03, 2018, 04:41:11 AM
Not funny man, WFC is my second largest position.  >:(

That being said after this I wouldn't be surprised if uncle Warren takes a trip to the west coast and fires them all.

My second largest position also, after, you guessed it, BRK.

It’s hard to justify paying more than $50/ share for this stock. I think it is a sell at $60. - totally overvalued. They are going to have the FED breathing down their neck for years, no growth, increased expenses and good people working for WF  will move to competitors for greener pastures.

Maybe.

My cost basis is near $10, so it would be a huge tax bill to sell.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on February 03, 2018, 05:13:44 AM
Thank you for some very good posts about this WFC situation.

I read the attachments to this FED announcement this morning. Those attachments are a total humiliation of the WFC board of directors. The board is accused of not doing what it should do, and the board actually is ordered homework to do, with reporting to FED on running basis. Four directors are ordered to leave, too. I have not earlier seen anything like this for a large US bank.

All this roots to corporate governance of the bank. From the letter to Mr. Stumpf:

Quote
... In addition, according to the April 10, 2017, Sales Practices Investigation Report (Report), you were aware of specific sales practice problems over the years in your management capacity at the firm. However, as Chair, you did not ensure that the full board received detailed and timely reporting from senior management. Moreover, you did not appear to initiate any serious investigation or inquiry into the sales practices issues (or any other compliance issues that you may have been aware of at the time) or put a proposal to do so to the WFC board. ...

In short, the "blessings" of having a bank CEO being a Chairman at the bank simultaneously.

- - - o 0 o - - -

Here, all that got weeded out swiftly with firm hand for the banks post GFC, including incompetent board members at banks [here called "board of aunts"].
Title: Re: WFC - Wells Fargo
Post by: Jurgis on February 03, 2018, 06:17:24 AM
My read is WFC has been in denial since this first happened and they still must not be moving fast enough for the Fed. Stumpf blew it big time. And my guess is the new CEO has only done marginally better.

+1. Denial, no responsibility, blame shifting, blaming customers. New CEO too.

I might buy some BRK if it gaps down enough on Monday. Not buying WFC. Do not own it either.

Good luck.
Title: Re: WFC - Wells Fargo
Post by: AzCactus on February 03, 2018, 07:17:39 AM
This is when I think of Buffett's quote about reputation--a lifetime to build it and 5 minutes to lose it or something to that effect.  If I was a client of Wells Fargo or a shareholder I would really be thinking there are better options.  I think it would be foolish to underestimate the potential ramifications of being SINGLED out by the fed.   
Title: Re: WFC - Wells Fargo
Post by: gary17 on February 03, 2018, 07:46:02 AM
The press release says they will maintain capital return— so if they can make the adjustments and the shares get really cheap maybe this is the BAC or C moment two years ago that is worth thinking of buying. 
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on February 03, 2018, 08:07:50 AM
I don't think that the situation is so dire that they must cede competitive ground.

On the asset side they have 273B in short term investments and repo.  As well as 415B of investment securities. That's 688B total. Some of the short term stuff they need for liquidity. But the can pull back a lot on this 688 to make room for new loans.

On the liability side there's 94 billion in short term borrowing that can be easily replaced by deposits.

So they have room to actually run the business. The regulatory action was a wake up call delivered with an air horn though.


Yep.  In an ideal world, to not cede competitive ground, WFC would grow its loans by perhaps $50B or $60B during 2018, which would be ~5% or so.  If this enhanced supervision by the Fed lasts only one year (let's hope!), there should be no trouble to manage aggregate asset levels by cranking up dividends and stock buy backs, repaying debt or buying back prefs, or, as you said, re-profiling assets.  If the enhanced supervision and asset growth restriction lasts two or three years, things might start to become a bit tight.

The perverse part of this is that one of the rational ways for WFC to manage the Fed's asset restriction is to reduce it's capital levels through divvies and buybacks, to reduce its financial flexibility by repaying long-term debt and to underestimate (for accounting purposes) its allowance for doubtful accounts.  IMO, that would not exactly be positive for WFC's clients.


SJ
Title: Re: WFC - Wells Fargo
Post by: rb on February 03, 2018, 10:30:49 AM
The perverse part of this is that one of the rational ways for WFC to manage the Fed's asset restriction is to reduce it's capital levels through divvies and buybacks, to reduce its financial flexibility by repaying long-term debt and to underestimate (for accounting purposes) its allowance for doubtful accounts.  IMO, that would not exactly be positive for WFC's clients.


SJ
I don't think that they need to to reduce their capital. They could let their capital levels rise a delever a bit. Not really such a bad thing. Basically what I'm thinking here is that for Wells to continue to grow under this Fed restriction they need to become more retail and maybe derisk a bit. I'm perfectly fine with that.

I also don't think that the restriction will last more than a year. We shouldn't forget that uncle Warren does own $32 billion worth of stock. He's probably already at work weaving that behind the scenes magic where troublesome managers mysteriously vanish (anyone heard of Doug Ivester after 2000?), regulators are appeased, and problems dissapear.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on February 04, 2018, 05:23:24 AM
... I also don't think that the restriction will last more than a year. ...

From the WFC News Announcement:

Quote
... Within 60 days:
The company’s board will submit a plan to further enhance the board’s effectiveness in carrying out its oversight and governance of the company.
The company will submit a plan to further improve the company’s firm-wide compliance and operational risk management program.

After Federal Reserve approval, the company will engage independent third parties to conduct a review to be completed no later than September 30, 2018 to confirm adoption and implementation of the plans. ...

So this issue has to be solved [planned, FED approved, adopted & reviewed] to FED's satisfaction within 8 months from now. The question I'm asking myself is actually: "If not, what then?" [Continued restrictions combined with extension of deadline, or more sanctions on top of restrictions already in place.]
Title: Re: WFC - Wells Fargo
Post by: Cigarbutt on February 04, 2018, 06:00:45 AM
Disclosure: haven't looked at the financials for at least five years.
Around 10 years ago, read Stagecoach (see link below).
The last chapter of the last section is titled: The Next Stage. Edited in 2002.

The recent news look absolutely terrible.
I would guess though that it does not really change the long term prospects.

https://www.amazon.com/Stagecoach-Wells-Fargo-American-West/dp/0743234367/ref=sr_1_1?s=movies-tv&ie=UTF8&qid=1517751759&sr=8-1&keywords=stagecoach+wells+fargo

Of course, times have changed as Wells Fargo built its franchise when there were no safety nets and hardly any government.
My own humble assessment is that Wells Fargo is not so different from the typical big bank. To be the first one to have a wrap on the knuckles may not be a defining event.
To succeed, one needs to adapt, and your opinion about Wells Fargo may have to rest on an assessment of its ability to adapt.
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on February 05, 2018, 05:13:54 AM
Disclosure: haven't looked at the financials for at least five years.
Around 10 years ago, read Stagecoach (see link below).
The last chapter of the last section is titled: The Next Stage. Edited in 2002.

The recent news look absolutely terrible.
I would guess though that it does not really change the long term prospects.

https://www.amazon.com/Stagecoach-Wells-Fargo-American-West/dp/0743234367/ref=sr_1_1?s=movies-tv&ie=UTF8&qid=1517751759&sr=8-1&keywords=stagecoach+wells+fargo

Of course, times have changed as Wells Fargo built its franchise when there were no safety nets and hardly any government.
My own humble assessment is that Wells Fargo is not so different from the typical big bank. To be the first one to have a wrap on the knuckles may not be a defining event.
To succeed, one needs to adapt, and your opinion about Wells Fargo may have to rest on an assessment of its ability to adapt.

When times are good everyone claims a company's culture is one of their moats, or reasons for doing well.

When WFC gets hit like they do it seems like culture is forgotten.  Long term this absolutely matters.  The culture was never great to start, in the banking industry this was/is well known.  Now with the consent order it's another nail in the coffin for high performers, they can't grow, instead they need to farm accounts.  So they will leave.

There are long term consequences to these things. 

They other three big banks have always seen WFC as the patsy at the table, they still are, this is only going to get worse over time.  They need an outsider to come in, clear the ranks, re-tool their business and rebuild.
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on February 05, 2018, 08:14:22 AM
Good Ole Norwest...
Title: Re: WFC - Wells Fargo
Post by: bookie71 on February 05, 2018, 08:47:16 AM
fyi
https://mail.google.com/mail/u/0/#inbox/1616617efb0ac232
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on February 05, 2018, 09:07:42 AM
fyi
https://mail.google.com/mail/u/0/#inbox/1616617efb0ac232

You are posting a link into gmail inbox. Can’t read it
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on February 05, 2018, 11:30:12 AM
For the longest time, WFC's 'moat' was the deposits + mortgages. They still have those advantages relative to other banks. I don't understand how the perception of WFC has changed so much relative to ~6 months ago. Every major US bank not named WFC contributed to LIBOR fixing. Every bank of size gets fined every year for various incidents of fraud. No one is holding back investing in JPM because of 'poor risk control' (London Whale) or 'endemic fraud culture' (LIBOR fixing).

Of course my opinion would probably change if the Fed penalties were increased or if WFC refused to respond to them, but current news seems like noise. The terminal value for WFC is essentially unchanged and the present value of the next couple of years are nominally lower relative to just prior to the announcement.
Title: Re: WFC - Wells Fargo
Post by: nkp007 on February 05, 2018, 11:32:15 AM
For the longest time, WFC's 'moat' was the deposits + mortgages. They still have those advantages relative to other banks. I don't understand how the perception of WFC has changed so much relative to ~6 months ago. Every major US bank not named WFC contributed to LIBOR fixing. Every bank of size gets fined every year for various incidents of fraud. No one is holding back investing in JPM because of 'poor risk control' (London Whale) or 'endemic fraud culture' (LIBOR fixing).

Of course my opinion would probably change if the Fed penalties were increased or if WFC refused to respond to them, but current news seems like noise. The terminal value for WFC is essentially unchanged and the present value of the next couple of years are nominally lower relative to just prior to the announcement.

BAC went from the most hated bank in 2011/2012 to the most loved back today. Wells will be back one day. It's all cyclical. Still has the best loan book in the business.
Title: Re: WFC - Wells Fargo
Post by: rb on February 05, 2018, 11:57:17 AM
BAC went from the most hated bank in 2011/2012 to the most loved back today. Wells will be back one day. It's all cyclical. Still has the best loan book in the business.
+1 I would add that Wells still has the best risk management in the business. That's probably what matters most when it comes to holding banks. You've got talking heads today saying that this is so negative for Wells because other banks are going to outperform it over the next 12 months. But what happens when the next banking crisis comes and we sort the wheat from the chaff?
Title: Re: WFC - Wells Fargo
Post by: mcliu on February 05, 2018, 12:42:02 PM
So oddly enough, this might be beneficial for shareholder..?As long as the business and reputation of the bank stays intact then the lack of loan growth (in a late-cycle) might actually reduce risk and allow the bank to return more capital to shareholders (through repurchases) while depressing the stock price..  :o
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on February 05, 2018, 01:13:43 PM
Compared to the mkt, WFC only fell by 5% lol
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on February 05, 2018, 03:08:58 PM
So oddly enough, this might be beneficial for shareholder..?As long as the business and reputation of the bank stays intact then the lack of loan growth (in a late-cycle) might actually reduce risk and allow the bank to return more capital to shareholders (through repurchases) while depressing the stock price..  :o

FED CCAR cycles does not work that way with regard to assesment of risk.
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on February 05, 2018, 04:03:21 PM
So oddly enough, this might be beneficial for shareholder..?As long as the business and reputation of the bank stays intact then the lack of loan growth (in a late-cycle) might actually reduce risk and allow the bank to return more capital to shareholders (through repurchases) while depressing the stock price..  :o

FED CCAR cycles does not work that way with regard to assesment of risk.

My understanding is profit distribution plans are approved based on what the Fed thinks your bank can support. WFC will be able to support a greater payout ratio if they can not expand their asset base, all else equal. It's just the classic bank model with the formula rearranged: growth / ROE = retention (growth drives retention for WFC now instead of the typical ROE/retention choices of a bank driving growth rate). If growth is set to 0%, then distributions and/or capital ratios will probably increase. Maybe the Fed forces increased reserving or WFC invests in tech upgrades during this period and this is all moot, but that's the first-level implication of 0% growth. In 2016, retention rate was ~30%. That's ~$6.5b in new equity (3% increase in BV) in 2018 while growth is forced to be 0%. WFC is already at a 11.5% tier 1 capital ratio. This is a long way of saying, I think distributions should increase during the penalty period.

I hope WFC doesn't move up the risk ladder to more efficiently use their capital. It might be rational for them to consider doing so if the Fed didn't authorize increased distributions during the restriction period.

It's hard to say how this will work out for WFC but my first reaction was similar to mcliu. I think this could be a blessing in disguise for WFC, if they use the opportunity properly.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on February 05, 2018, 04:22:23 PM
So oddly enough, this might be beneficial for shareholder..?As long as the business and reputation of the bank stays intact then the lack of loan growth (in a late-cycle) might actually reduce risk and allow the bank to return more capital to shareholders (through repurchases) while depressing the stock price..  :o

FED CCAR cycles does not work that way with regard to assesment of risk.

My understanding is profit distribution plans are approved based on what the Fed thinks your bank can support. ...

If WFC does not have all its risks documented  in control at the latest moment for applying for CCAR approval this year for the share buy back during the next CCAR cycle 2018/19 [May 2018 perhaps? - Quite unlikely to me, based on the actual situation], the regulatory body must be supposed to instate a margin of safety in the 2018/19 buyback program, by approving a reduction compared to requested.

That does not make that particular part of the retained earnings disappear, though. [As already posted here in this topic.]
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on February 05, 2018, 04:55:30 PM
As I am reading the letter from the FED again, I can guess what happened.

Starting with the investigation into the the fraudulent account openings in Spring 2017, the FED started to audit WFC management systems. As I recall, Stumpf stated in the Congress hearing that he did not know about many of the things going on at a branch level. The might seem like a. On ending answer, but from an auditor POV, it is a strong clue to dig very deeply on how the organization is actually run. I believe the latter audit found issues that go way beyond the issue of WFC defrauding customers and management not knowing about it (or claiming such). I believe this is why the FED letter contains such strong wording in terms of controlling growth and risk management -this isn’t just about how the deal with customers any more. Now WFC will have to redesign their management systems, out more controls in place and a very likely more bureaucracy until the whole system can become more streamlined again. This means increased cost, losing high potential employees and stunted growth. It certainly means get WFC’s risk management system is not best in class, quite the opposite.
Title: Re: WFC - Wells Fargo
Post by: Viking on February 05, 2018, 05:21:16 PM
My limited understanding is CCAR awards are partly a reward to banks: they get larger awards because they have the excess capital AND are in good working relationship with the Fed (regulators). I have a hard time understanding how WFC will get an outsized award because of the excess capital they may generate as a result of this action. The Fed will be looking to do them no favours in CCAR this year; my guess is the opposite - they will look for any reason to reduce their capital return.

When C ended up in the Feds cross hairs this resulted in a complete CCAR miss that year (if I remember correctly). I am not saying this will happen to WFC.

Any capital BAC has on the balance sheet will eventually get to shareholders; but all the big banks today have excess capital on their balance sheet and it is only slowly being allow to be returned to shareholders over many years. For many reasons, I am not going to be in a hurry to invest in WFC.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on February 05, 2018, 05:29:21 PM
To me, this is so specific and simple, yet so complicated.

It is about dishonest employees, trying, or getting away with, to take advantage of [uninformed?] customers [by socalled "crossselling"], because of an incentive program in the bank, [an incentive program, that makes sense, under the specific assumption, that all the employees are honest, which at least some of them turned out not to be].

Isen't that to you pretty simple to solve?
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on February 05, 2018, 05:54:28 PM
As I am reading the letter from the FED again, I can guess what happened.

Starting with the investigation into the the fraudulent account openings in Spring 2017, the FED started to audit WFC management systems. As I recall, Stumpf stated in the Congress hearing that he did not know about many of the things going on at a branch level. The might seem like a. On ending answer, but from an auditor POV, it is a strong clue to dig very deeply on how the organization is actually run. I believe the latter audit found issues that go way beyond the issue of WFC defrauding customers and management not knowing about it (or claiming such). I believe this is why the FED letter contains such strong wording in terms of controlling growth and risk management -this isn’t just about how the deal with customers any more. Now WFC will have to redesign their management systems, out more controls in place and a very likely more bureaucracy until the whole system can become more streamlined again. This means increased cost, losing high potential employees and stunted growth. It certainly means get WFC’s risk management system is not best in class, quite the opposite.

This is the best reading between the lines I've seen.  I agree 100%.

As for best of class risk management, I'm not sure anyone but WEB followers believed that.  Their 'moat' was cross-selling, which as we came to find out wasn't quite what we thought it was.

The other mega that should fear an audit is JPM.  I have a book on my shelf where the author tied a few pieces of information together and ended up at the same conclusion as yours on JPM's risk management.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on February 05, 2018, 06:59:20 PM
To me, this is so specific and simple, yet so complicated.

It is about dishonest employees, trying, or getting away with, to take advantage of [uninformed?] customers [by socalled "crossselling"], because of an incentive program in the bank, [an incentive program, that makes sense, under the specific assumption, that all the employees are honest, which at least some of them turned out not to be].

Isen't that to you pretty simple to solve?

I believe you are incorrect and severely underestimate what led to this fraudulent behaviour and more importantly the scope of the Feds letter. The fraud perpetuated by WFC employees is just the tip of and iceberg, you need to ask yourself the question how it go to that point and what the broader implications are. Clearly the Fed thinks that way, so it is very relevant.
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on February 05, 2018, 07:23:27 PM
As I am reading the letter from the FED again, I can guess what happened.

Starting with the investigation into the the fraudulent account openings in Spring 2017, the FED started to audit WFC management systems. As I recall, Stumpf stated in the Congress hearing that he did not know about many of the things going on at a branch level. The might seem like a. On ending answer, but from an auditor POV, it is a strong clue to dig very deeply on how the organization is actually run. I believe the latter audit found issues that go way beyond the issue of WFC defrauding customers and management not knowing about it (or claiming such). I believe this is why the FED letter contains such strong wording in terms of controlling growth and risk management -this isn’t just about how the deal with customers any more. Now WFC will have to redesign their management systems, out more controls in place and a very likely more bureaucracy until the whole system can become more streamlined again. This means increased cost, losing high potential employees and stunted growth. It certainly means get WFC’s risk management system is not best in class, quite the opposite.

This is the best reading between the lines I've seen.  I agree 100%.

As for best of class risk management, I'm not sure anyone but WEB followers believed that.  Their 'moat' was cross-selling, which as we came to find out wasn't quite what we thought it was.

The other mega that should fear an audit is JPM.  I have a book on my shelf where the author tied a few pieces of information together and ended up at the same conclusion as yours on JPM's risk management.


Seriously?  The moat was and is exactly what management wanted.  Every officer in every branch was whoring themselves out to convince clients to take on another product, be it a credit card, line of credit, savings account or other.  That's exactly what management wanted and that was exactly in shareholders' interests.  A number of clever employees figured out how to exploit the company's  incentive structure and fraudulently signed people up for products.  So, how do you fix it?  I can offer a basic, Mickey Mouse solution that would stymie most renegade branch employees.  Put in place a policy where *every* time a customer "signs" up for a product, a letter is sent by snail mail to thank him for signing up, to provide the terms and conditions of his new product and other propaganda.  If a snail mail letter isn't sent, the sign-up doesn't count for the branch employee's gold star count.

It's exactly what we thought it was, but in a few cases it was a wee bit more than we wanted.  So fix it, but don't kill the cross selling culture.


SJ
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on February 05, 2018, 07:27:09 PM
To me, this is so specific and simple, yet so complicated.

It is about dishonest employees, trying, or getting away with, to take advantage of [uninformed?] customers [by socalled "crossselling"], because of an incentive program in the bank, [an incentive program, that makes sense, under the specific assumption, that all the employees are honest, which at least some of them turned out not to be].

Isen't that to you pretty simple to solve?

I believe you are incorrect and severely underestimate what led to this fraudulent behaviour and more importantly the scope of the Feds letter. The fraud perpetuated by WFC employees is just the tip of and iceberg, you need to ask yourself the question how it go to that point and what the broader implications are. Clearly the Fed thinks that way, so it is very relevant.


Why do you think it's the tip of the iceberg? 
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on February 05, 2018, 08:15:15 PM
I just read the letters again and I don't see any reference to deeper issues other them sales practices. The c&d and letters are pretty specific and the Fed isn't usually coy about financial issues. This case seems to be an issue where historical regulatory action says widespread fraud gets a slap on the wrist and Yellen wanted to induce real change. I dony get what everyone is insinuating. Can someone detail what the additional problems are?

Title: Re: WFC - Wells Fargo
Post by: sleepydragon on February 05, 2018, 08:29:25 PM
If Feds knew this would trigger WFC down 10% in a day and also hurting all other banking stocks as well, they would have done this differently.
Now the new Fed guy  just got himself a mess to deal with.
Title: Re: WFC - Wells Fargo
Post by: Gamecock-YT on February 05, 2018, 08:30:44 PM
My limited understanding is CCAR awards are partly a reward to banks: they get larger awards because they have the excess capital AND are in good working relationship with the Fed (regulators). I have a hard time understanding how WFC will get an outsized award because of the excess capital they may generate as a result of this action. The Fed will be looking to do them no favours in CCAR this year; my guess is the opposite - they will look for any reason to reduce their capital return.

When C ended up in the Feds cross hairs this resulted in a complete CCAR miss that year (if I remember correctly). I am not saying this will happen to WFC.

Any capital BAC has on the balance sheet will eventually get to shareholders; but all the big banks today have excess capital on their balance sheet and it is only slowly being allow to be returned to shareholders over many years. For many reasons, I am not going to be in a hurry to invest in WFC.

Also don't forget the Fed's CCAR scenario is much more difficult than last year.
Title: Re: WFC - Wells Fargo
Post by: Dynamic on February 06, 2018, 01:06:42 AM
If Feds knew this would trigger WFC down 10% in a day and also hurting all other banking stocks as well, they would have done this differently.
Now the new Fed guy  just got himself a mess to deal with.

I think 10% down in a day needs to be taken in the context of the 6%+ decline in the DJIA/S&P500 on the same day, apparently caused by inflationary fears and doubts over the new head of the Fed, but possibly a continuation of Friday's jitters and a 'correction' to some of the excessive optimism of the January rally and maybe even knock-ons from the psychological effect of cryptocurrency declines in making optimists with no value anchor more hesitant to participate in what appears to be a choppy market or a precipitously falling one!

A 3-4% decline relative to the index normally wouldn't seem such an alarming hit in one stock, but a relatively measured adjustment of expectations given the seriousness of the Fed's demands.

However, given the decline in various market prices there are one or two stocks that I now consider attractively priced that I might at least spend some excess cash on, and I will also give consideration to whether I sell some of my smaller positions such as WFC and IBM to increase my higher-conviction positions or not. Fortunately I have no tax consequences from trading in my account, except 30% withholding tax on US dividends.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on February 06, 2018, 04:38:14 AM
If Feds knew this would trigger WFC down 10% in a day and also hurting all other banking stocks as well, they would have done this differently.
Now the new Fed guy  just got himself a mess to deal with.

Why do you think the Fed cares about WFC being down 10%? It’s still up from where it was a year ago, trades at 1.5x book and 13x earnings - hardly a distressed valuation. If anything, the Fed may feel good about feel good about kicking them where the sun doesn’t shine, to get WFC’s management going in the right direction.
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on February 06, 2018, 06:13:43 AM
If Feds knew this would trigger WFC down 10% in a day and also hurting all other banking stocks as well, they would have done this differently.
Now the new Fed guy  just got himself a mess to deal with.

Why do you think the Fed cares about WFC being down 10%? It’s still up from where it was a year ago, trades at 1.5x book and 13x earnings - hardly a distressed valuation. If anything, the Fed may feel good about feel good about kicking them where the sun doesn’t shine, to get WFC’s management going in the right direction.


Yes, if you believe that the Fed is completely pissed off with WFC's management, then they're probably pretty satisfied this morning.  Any WFC employee that was granted stock options in the last couple of years has just been administered a good old-fashioned ass-kicking.  For people whose options have flipped from being in the money to out, it's gotta hurt.  For people who are still in the money, the hurt is still there, but at least their option values aren't back to zero-ish.


SJ
Title: Re: WFC - Wells Fargo
Post by: KCLarkin on February 06, 2018, 08:01:55 AM
As for best of class risk management, I'm not sure anyone but WEB followers believed that.

I'm not sure WEB would even utter the phrase "risk management" let alone "best-in-class risk management". WEB believes that WFC has relatively prudent underwriting. WFC trades at a premium because it had higher ROE. That advantage has eroded, so the premium is no longer deserved. That's why WFC has underperformed and will likely continue to underperform.

The Fed action and the sales scandal are just noise.
Title: Re: WFC - Wells Fargo
Post by: vinod1 on February 06, 2018, 10:55:16 AM
As for best of class risk management, I'm not sure anyone but WEB followers believed that.

I'm not sure WEB would even utter the phrase "risk management" let alone "best-in-class risk management". WEB believes that WFC has relatively prudent underwriting. WFC trades at a premium because it had higher ROE. That advantage has eroded, so the premium is no longer deserved. That's why WFC has underperformed and will likely continue to underperform.

The Fed action and the sales scandal are just noise.

+1

Only have a tracking position in WFC. Why I like WFC, along with MTB and USB is

- Sticks to basic banking. No large investment banking or trading operations
- Low funding costs reslting in high NIM
- Low efficiency ratio
- Conservative underwriting resulting in low charge offs

In WFC's case, the low costs seem to be driven by cross-selling. The other two have low costs as well but they do not have any cross-selling so I do not have a strong opinion on how important that is.

The main question is how much IV has been impaired as result of this. My guess is a very small amount.

I worked at a bank where Fed has issued something similar more than a decade back which resulted in the stock tumbling by 40% at that time. I did not work on mitigating the MOU with the Fed but several of my colleagues did and the work is really catching up with best practices. No idea what pissed them off but at least the stock reaction was way overdone. Unfortunately I was in the efficient market camp at that time and did not take advantage of that.

Vinod

Title: Re: WFC - Wells Fargo
Post by: CorpRaider on February 06, 2018, 11:57:57 AM
I felt like Wachovia was a good bank.  Before First Union took it over to cloak the stench of their brand, I mean.  Beast mode deposit gatherers.  I was looking at Park Sterling as a bank run by former Wachovia peeps, but I think they just sold out.

Title: Re: WFC - Wells Fargo
Post by: Spekulatius on February 08, 2018, 04:20:18 AM
To me, this is so specific and simple, yet so complicated.

It is about dishonest employees, trying, or getting away with, to take advantage of [uninformed?] customers [by socalled "crossselling"], because of an incentive program in the bank, [an incentive program, that makes sense, under the specific assumption, that all the employees are honest, which at least some of them turned out not to be].

Isen't that to you pretty simple to solve?

I believe you are incorrect and severely underestimate what led to this fraudulent behaviour and more importantly the scope of the Feds letter. The fraud perpetuated by WFC employees is just the tip of and iceberg, you need to ask yourself the question how it go to that point and what the broader implications are. Clearly the Fed thinks that way, so it is very relevant.


Why do you think it's the tip of the iceberg?

The big news in the Fed letter is the problem with WFC’s risk management, which sort of is unrelated to their failings regarding the consumer banking (unauthorized account openings). In my former post, I guessed, that this was discovered in an audit trail, when they were questioning management and apparently discovered, that management does not seem to have a good grasp on risk. I believe this is why the Fed stunted WFC’s growth. It is big news (if correct), because now we have two issues, rather than one and I think I lied lack of risk management is a tually a much bigger deal.

People here talk about WFC’s great underwriting, but how do we know it is still true? Thry were better heading into the Great Recession, but that was 11 years ago, Things may have changed over time, we won’t know until a recession hits.

Now granted, underwriting and risk management are two different things technically, but they are closely related and I can’t see how one is great without the other and vice versa.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on February 08, 2018, 05:36:58 AM
Spekulatius,

I apologize for a post, that I now consider unclear, after rereading it myself. My point was actually about execution on the changes the whole way down in the WFC organization. Somebody has to leave that quite flamboyant office tower in downtown San Francisco and get out in the departments and branches to communicate what is expected face to face, perhaps even delivering speaches to the staff, Mr. Balmer-like. Really to get some dirt under the nails. [Really burning through, so the message goes in.]

Your logic in your last post makes sense to me. A part of the total WFC risk picture is reputational risk.

- - - o 0 o - - -

Some anecdotal stuff at least partly related to this WFC situation:

Boersen.dk LONGREAD [2018.01.31]: "We had to get it right with all the basics. Otherwise, we had spent [DKK] 9 billion on nothing " (http://borsen.dk/nyheder/longread/artikel/1/357452/vi_maatte_faa_styr_paa_det_helt_basale_ellers_havde_vi_brugt_9_milliarder_paa_ingenting.html). [unfortunately subscription protected].

It's the story about the Danish logistics company DSV A/S [DSV.CPH] acquiring American UTI, where the DSV management now has come forward with the whole story about a mistake at the size of DKK 9 B, which they paid for a potential zero - a train wreck. It's also the full and true story about how you change a train wreck to a gem - in one year!

- - - o 0 o - - -

I'm in the same camp as Viking with regard to Mr. Sloan's employment prospects at WFC, if he isen't soon to understand his job.
Title: Re: WFC - Wells Fargo
Post by: Rasputin on February 08, 2018, 05:47:08 AM
Our opinion on which bank has or does not have great underwriting don't matter. 

There is only one opinion that matters: The Fed. 

The Fed tells us every year, which bank is the best (lowest loan loss ratio in severely adverse scenario for the 9 quarter stressed period) in loan underwriting, it's called Dodd-Frank Act Stress Tests. 

Among the trillionaires:

2012 DFAST best: JPM, 2nd best: WFC
2013 DFAST best: BAC, 2nd best: WFC
2014 DFAST best: BAC, 2nd best: WFC
2015 DFAST best: BAC, 2nd best: WFC
2016 DFAST best: WFC, 2nd best: BAC
2017 DFAST best: BAC, 2nd best: WFC

Title: Re: WFC - Wells Fargo
Post by: sleepydragon on February 08, 2018, 07:13:45 AM
I really don’t see why WFC will be more risky than other banks like JPM.
They don’t have stuffs like XIV for example.
Taking deposits and making loans, that’s not very complicated.
I got my mortgage from wfc. Their underwriter checked everything. I even had to write a one page to explain how do I come up with my future income estimates - even though I had assets that’s already exceeding the mortgage. I sent so many documents to them. It’s more documents than getting the green card!
 
Title: Re: WFC - Wells Fargo
Post by: ValueMaven on February 08, 2018, 07:26:47 AM
I've been adding a lot of WFC recently....
Title: Re: WFC - Wells Fargo
Post by: racemize on February 08, 2018, 07:28:52 AM
What I don't get is that it just got down to peers in terms of valuation.  I'd be interested if it were trading at C levels, but getting next to JPM/BAC--I'd rather own the other two.  JPM has just as good of underlying returns over the last 10 years (if not better), and BAC has a lower cost of deposits.
Title: Re: WFC - Wells Fargo
Post by: rb on February 08, 2018, 12:55:20 PM
What I don't get is that it just got down to peers in terms of valuation.  I'd be interested if it were trading at C levels, but getting next to JPM/BAC--I'd rather own the other two.  JPM has just as good of underlying returns over the last 10 years (if not better), and BAC has a lower cost of deposits.
The difference comes from the fairly non-existent derivatives book of Wells.
Title: Re: WFC - Wells Fargo
Post by: Rasputin on February 09, 2018, 05:25:46 AM
I highly suggest people familiarize themselves with banks' Basel 3 pillar 3 disclosure

Here is WFC's

https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/basel-disclosures/2017-third-quarter-pillar-3-disclosure.pdf?https://www.wellsfargo.com/assets/pdf/about/investor-relations/basel-disclosures/2017-third-quarter-pillar-3-disclosure.pdf

Starting on page 22, you can see their derivatives exposure...it is NOT fairly non-existent, smaller than BAC's and JPM's (40% of BAC's) but $19 B in RWA is pretty decent size imo.

I compare wfc, jpm and bac pillar 3 disclosures every quarter. 
Title: Re: WFC - Wells Fargo
Post by: rb on February 09, 2018, 07:16:46 PM
I highly suggest people familiarize themselves with banks' Basel 3 pillar 3 disclosure

Here is WFC's

https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/basel-disclosures/2017-third-quarter-pillar-3-disclosure.pdf?https://www.wellsfargo.com/assets/pdf/about/investor-relations/basel-disclosures/2017-third-quarter-pillar-3-disclosure.pdf

Starting on page 22, you can see their derivatives exposure...it is NOT fairly non-existent, smaller than BAC's and JPM's (40% of BAC's) but $19 B in RWA is pretty decent size imo.

I compare wfc, jpm and bac pillar 3 disclosures every quarter.
Ok, I was being a little glib when I said that Well's derivatives book doesn't exists. They're not only listed in the Basel pillar 3 disclosure. They're also in the notes to the financial statements.

First of all pulling the up the pillar 3 diclosures for WFC and BAC I observe that BAC has much less detail in their disclosure than WFC. BAC just gives you a total RWA and doesn't break down the categories like WFC does. Secondly pulling the Wells 10-Q I notice that the numbers are different between the two. I guess there must be some different standards for aggregating these. But since BAC doesn't break down their derivatives in pillar 3 I'll have to use financial statements to compare like with like. It's note 12 for WFC and note 2 for BAC.

This is how I look at this stuff.

Bucket 1: Interest Rates and Foreign Exchange. WFC=7.4 trillion BAC=34.4 trillion. Every bank will have tons of these and it's pretty simple and benign stuff. I'm not worried about these at all.

Bucket 2: Equity and Commodity. I'm a bit more concerned with these but not overly so. They're usually pretty well hedged. A floor may want to dial risk up or down a bit but it's usually at the margin. WFC=250 billion BAC=1.5 trillion.

Bucket 3: Credit Derivatives. This is the really scary stuff. WFC=30 billion BAC=1.2 trillion.

So yea Wells has 30 billion of the really scary stuff. But honestly that's pretty non existent on a 2 trillion balance sheet which is what I was getting at. Bank of America has 1.2 trillion of the scary stuff. Wells's total positions actually fit in the rounding error for Bank of America. Also if you move away and look at the total picture BAC dwarfs WFC in all derivative categories. All this while BAC has a similar sized balance to WFC.
Title: Re: WFC - Wells Fargo
Post by: Rasputin on February 10, 2018, 06:26:01 AM
While notional value is always scary, notional value does not equal possible losses.  We can't compare possible losses from derivatives across banks just by looking at notional value, because we don't know the detail of the banks trading positions.  This is my view.

The fed's view:

From 2017 DFAST

"the relative size of losses across firms depends not on nominal portfolio
size but rather on the specific risk characteristics of each BHC’s trading positions, inclusive of hedges.  Importantly, these projected losses are based on the
trading positions and counterparty exposures held by these firms on a single date (January 3, 2017) and could have differed if they had been based on a different
date."

We are lucky that we have an independent 3rd party that goes through the GSIBs books and from my understanding, the fed rotates their stress teams, so no team work on the same GSIB every year. 

I use stress capital buffer (as defined by ex governor Tarullo) to see which bank loses the least/most % of capital in a severely adverse scenario.

WFC lost the least % of capital in 2015 and 2017 dfast, with BAC as runner up.  BAC had the lowest scb in 2016 dfast with WFC as runner up.

I prefer WFC's balance sheet vs BAC's (i wish BAC got the same consent order so they will shrink their trading book, worst part of their business), but it's a shame that WFC's management is still pompous even after the consent order.   

From today's Barron's:

“We’re the last bank, not the first bank, in the past 10 years to have gone through some sort of a breakdown that led to reputational damage that had to be worked through,” Shrewsberry says. “It’s not a benefit to go last, but it’s not unique.”

I view WFC as roughly 7-10% cheaper than BAC and I have been nibbling.
Title: Re: WFC - Wells Fargo
Post by: benchmark on February 10, 2018, 08:03:22 AM
While notional value is always scary, notional value does not equal possible losses.  We can't compare possible losses from derivatives across banks just by looking at notional value, because we don't know the detail of the banks trading positions.  This is my view.

The fed's view:

From 2017 DFAST

"the relative size of losses across firms depends not on nominal portfolio
size but rather on the specific risk characteristics of each BHC’s trading positions, inclusive of hedges.  Importantly, these projected losses are based on the
trading positions and counterparty exposures held by these firms on a single date (January 3, 2017) and could have differed if they had been based on a different
date."

We are lucky that we have an independent 3rd party that goes through the GSIBs books and from my understanding, the fed rotates their stress teams, so no team work on the same GSIB every year. 

I use stress capital buffer (as defined by ex governor Tarullo) to see which bank loses the least/most % of capital in a severely adverse scenario.

WFC lost the least % of capital in 2015 and 2017 dfast, with BAC as runner up.  BAC had the lowest scb in 2016 dfast with WFC as runner up.

I prefer WFC's balance sheet vs BAC's (i wish BAC got the same consent order so they will shrink their trading book, worst part of their business), but it's a shame that WFC's management is still pompous even after the consent order.   

From today's Barron's:

“We’re the last bank, not the first bank, in the past 10 years to have gone through some sort of a breakdown that led to reputational damage that had to be worked through,” Shrewsberry says. “It’s not a benefit to go last, but it’s not unique.”

I view WFC as roughly 7-10% cheaper than BAC and I have been nibbling.

Have you sold some of your BAC? I remember that you were really bullish on BAC....
Title: Re: WFC - Wells Fargo
Post by: gary17 on February 10, 2018, 08:25:39 AM
interesting. thanks
i have been tempted to buy some WFC too ; i gather it is cheaper but hard for me to know if it’s cheaper for a good reason — the  damage to the brand ...  is that a permenant thing i wonder.   

While notional value is always scary, notional value does not equal possible losses.  We can't compare possible losses from derivatives across banks just by looking at notional value, because we don't know the detail of the banks trading positions.  This is my view.

The fed's view:

From 2017 DFAST

"the relative size of losses across firms depends not on nominal portfolio
size but rather on the specific risk characteristics of each BHC’s trading positions, inclusive of hedges.  Importantly, these projected losses are based on the
trading positions and counterparty exposures held by these firms on a single date (January 3, 2017) and could have differed if they had been based on a different
date."

We are lucky that we have an independent 3rd party that goes through the GSIBs books and from my understanding, the fed rotates their stress teams, so no team work on the same GSIB every year. 

I use stress capital buffer (as defined by ex governor Tarullo) to see which bank loses the least/most % of capital in a severely adverse scenario.

WFC lost the least % of capital in 2015 and 2017 dfast, with BAC as runner up.  BAC had the lowest scb in 2016 dfast with WFC as runner up.

I prefer WFC's balance sheet vs BAC's (i wish BAC got the same consent order so they will shrink their trading book, worst part of their business), but it's a shame that WFC's management is still pompous even after the consent order.   

From today's Barron's:

“We’re the last bank, not the first bank, in the past 10 years to have gone through some sort of a breakdown that led to reputational damage that had to be worked through,” Shrewsberry says. “It’s not a benefit to go last, but it’s not unique.”

I view WFC as roughly 7-10% cheaper than BAC and I have been nibbling.
Title: Re: WFC - Wells Fargo
Post by: Rasputin on February 12, 2018, 05:32:23 AM
BAC is roughly 70% of my portfolio.  At one point in 2016 it was 125% of my portfolio. 

I think it's more likely than not that WFC's reputation will recover though it might take 3-5 years for WFC to be rid of this issue.  WFC's community banking still grew deposit by 4% from Q4 2016 to Q4 2017.

Anybody remembers this?

https://www.forbes.com/sites/halahtouryalai/2011/10/04/senator-durbins-reckless-message-to-bofa-customers-find-a-new-bank/#546412b99dfa

https://www.reuters.com/article/us-bank-of-am-capitalresubmission/bofa-suspends-buyback-div-increase-after-capital-error-idUSBREA3R0R920140428
Title: Re: WFC - Wells Fargo
Post by: SlowAppreciation on February 13, 2018, 11:34:37 AM
Short thesis on CACC, with lots of mentions of WFC: https://www.plainsite.org/realitycheck/cacc2.pdf
Title: Re: WFC - Wells Fargo
Post by: AzCactus on February 14, 2018, 01:13:12 PM
Pretty funny hearing Charlie defend Wells Fargo. 
Title: Re: WFC - Wells Fargo
Post by: nkp007 on March 16, 2018, 02:10:23 PM
https://www.wsj.com/articles/justice-department-widens-wells-fargo-sales-investigation-to-wealth-management-1521215076

The Justice Department and Securities and Exchange Commission are conducting the investigation into the wealth-management business, these people said. Agents from the Federal Bureau of Investigation have been interviewing some wealth-management employees in the Phoenix area as recently as this week, some of these people said.


WFC likely needs CEO and top management. Political attacks won't stop until that happens. In addition, should help jolt the culture at the top (with an outside hire).
Title: Re: WFC - Wells Fargo
Post by: Viking on March 16, 2018, 03:10:24 PM
It continues to surprise me how aggressive the government has been and continues to be with WFC. AIs WFC really so rotten to the core or is there something else going on?

The stock is trading at the same price it was trading at three years ago. Since that time, economic growth has been great, interest rates are much higher and expected to increase further (benefitting NIM) and tax reform has significantly boosted net earnings. Crazy.
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on March 16, 2018, 03:21:21 PM
I never liked Norwest, but maybe I will kick the tires if it runs back toward the lows.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on March 17, 2018, 03:52:12 AM
It continues to surprise me how aggressive the government has been and continues to be with WFC. AIs WFC really so rotten to the core or is there something else going on?

The stock is trading at the same price it was trading at three years ago. Since that time, economic growth has been great, interest rates are much higher and expected to increase further (benefitting NIM) and tax reform has significantly boosted net earnings. Crazy.

Yes, but WFC’s earnings have stagnated during that time and the stock wasn’t cheap to begin with and it isn’t cheap now. It’s not crazy, it is reversion to the mean.
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on March 17, 2018, 04:56:04 AM
"But it expensive and something bad might happen."
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on March 17, 2018, 05:29:04 AM
It continues to surprise me how aggressive the government has been and continues to be with WFC. Is WFC really so rotten to the core or is there something else going on? ...

I can't help to speculate, that what we perhaps are observers to here, is public budget hoarding / storming - one of worst tumors in public finances. We are in the late innings in the battle post GFC between these "bad boys" [the banks] "who almost pushed the world out over the cliff" and the public and the regulators. The regulators are grapping for every straw and trying to penetrate every crack in the hull - how tiny it may seem - and turn every stone, where there is just a bit of smell of a case, the motive [perhaps] being to keep up own allocated ressources & budgets, justifying exisiting budgets [those most likely to be reduced going forward] by starting up investigations and perhaps also cases.

It's like lions hunting. Spot the weak creature in the hoard, isolate it, and then go for it. Not pretty. Done to survive.

At least WFC is entitled to equal and fair treatment, compared to it's competitors.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on March 17, 2018, 05:46:25 AM
It continues to surprise me how aggressive the government has been and continues to be with WFC. Is WFC really so rotten to the core or is there something else going on? ...

I can't help to speculate, that what we perhaps are observers to here, is public budget hoarding / storming - one of worst tumors in public finances. We are in the late innings in the battle post GFC between these "bad boys" [the banks] "who almost pushed the world out over the cliff" and the public and the regulators. The regulators are grapping for every straw and trying to penetrate every crack in the hull - how tiny it may seem - and turn every stone, where there is just a bit of smell of a case, the motive [perhaps] being to keep up own allocated ressources & budgets, justifying exisiting budgets [those most likely to be reduced going forward] by starting up investigations and perhaps also cases.

At least WFC is entitled to equal and fair treatment, compared to it's competitors.

I think WFC is just a convenient punching bag right now. Let’s say you are an ambitious employee in a government institution regulating banks - who are you going after if some irregularities surface, which are sure to surface in any bank with 100,000 of employees? Going after WFC is probably the easiest way to get some headlines, get some fines for the government, which will look great on your resume.

That is why reputation is so important in the banking business. Both the customers and the regulators need to trust you. Losing money is one thing, but losing reputation is worse, WEB said this better then anyone. WFC lost a good chunk of their reputation and it is going to be very expensive for them.

This is what the people that scoff at the few hundred million of settlement costs are missing.
Title: Re: WFC - Wells Fargo
Post by: RadMan24 on March 17, 2018, 01:58:00 PM
They'll also be better off in the future b/c of this.     

So not worried.
Title: Re: WFC - Wells Fargo
Post by: tng on March 22, 2018, 08:18:27 AM
BAC was a punching bag for regulators and politicians for many years, even though they were strong armed into acquiring Merrill and against executing the material-adverse clause to dump Countrywide. I expect WFC to continue to get kicked for at least another 1-2 years.
Title: Re: WFC - Wells Fargo
Post by: aws on March 23, 2018, 09:27:12 AM
I've been nibbling at this for a while and getting close to a full position now.  I'm surprised just how weak it has been this month as every day seems to be another 1-2% drop.  I have to think the downside is quite minimal relative to the market unless there really were a lot more cockroaches in the kitchen.

Not exactly a strong thesis, but relative weakness to other banks, huge additional buybacks, and presumably a return on assets that will tick up along with consistently rising rates over the next couple of years. 
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on March 31, 2018, 05:41:07 PM
Bottom line is they are Not losing many customers  and deposits keep increasing — unlike FB.
Revenue shall stay the same or keep growing.
Buying at this price I will be ok even if stock market is closed for 10 years.
A 20% positions for me.
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on April 02, 2018, 11:29:55 AM
Bottom line is they are Not losing many customers  and deposits keep increasing — unlike FB.
Revenue shall stay the same or keep growing.
Buying at this price I will be ok even if stock market is closed for 10 years.
A 20% positions for me.

Why WFC is my second largest position. Just wrote some WFC April 6 expiration 50-strike puts for $0.60 per share.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on April 13, 2018, 09:58:41 PM
WFC 2018Q1 (https://www.wellsfargo.com/about/investor-relations/quarterly-earnings/) out yesterday.

Both loan book and deposits are actually still shrinking. [Not by much though.]

On top of the earnings release I noted the following:

Quote
Our preliminary financial results may need to be revised to reflect additional accruals for the CFPB/OCC matter, discussed on page 2, when we file our final financial statements in our Quarterly Report on Form 10-Q.

So there may be changes between this earnings release deemed preliminary, and the WFC 10-Q to be filed later. It reads to me like some departments in WFC are burried in stuff related to the CFPB/OCC cases, and can't keep up in relation to the reporting cycle for the bank.

Other general stuff about the big four US banks has been posted about the 2018Q1 for WFC, JPM and C within the last day in the C topic.
Title: Re: WFC - Wells Fargo
Post by: rb on April 13, 2018, 10:42:51 PM
John,

They didn't bury stuff related to CFPB/OCC. It's a timing issue. They're actively negotiating a fine with the CFPB and OCC. This is well known. The issue seems to be that the fine is imminent but also the amount is not yet known. (Btw, if it's 1 billion that's really good. I expected significantly more) So they're not sure whether the fine should be booked in Q1 or Q2. They can't do an accrual cause they don't know the amount. They could have postponed reporting (doesn't look good) or they could do what they did and report preliminary with a caveat. This is actually not a big deal but more accounting rules related.

On the deposit and loans side. They've said that in order to comply with the consent order they're pulling back on taking deposits from other financial institutions. They have about $100B of those and they're low margin deposits. In the quarter they've decreased them by $15B and will continue to do so. There were also lower deposits in the wealth management business mainly related to asset rotation. I'm guessing due higher interest on bonds.

On the loans side they've have a big decline in auto loans. They're saying they're cutting back on risky loans and increasing the credit quality of the portfolio. If that's true I'm good with that. I don't think it's a scandal thing because you don't really get to choose your auto lender. So I'd tend to believe them.

Overall I'd say it was a meh quarter. Not good but not bad either. But given the situation they're in I'd say it was ok. The core business looks to be holding well. That's good.

The thing is that at these levels the company looks cheap. It's my second largest position and I'm thinking of adding more at this level or below. The reason why I haven't done it already is because it's already a large position. Ideally I'd like to add at a lower price but I don't know if it'll go there. I'll probably end up adding some around here then cut back in the 60s to right size the position.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on April 13, 2018, 10:55:24 PM
Thanks for putting some more colour on it here, rb,

I haven't finished studying the Q1 material yet. And I actually forgot about the FED order not to expand business volume. Is WFC out of that order now, by the way?



Title: Re: WFC - Wells Fargo
Post by: rb on April 13, 2018, 11:00:08 PM
No, they're still in the order. I get the feeling that they think they're gonna be out in a couple of quarters but I think no one can really know. They said that they're gonna keep pulling back on financial institutions deposits in order to protect/grow the core business while complying with the order. They said that the whole business of FI deposits is about 300 million of income a year.
Title: Re: WFC - Wells Fargo
Post by: dutchman on April 14, 2018, 04:24:33 AM
guys, will this fine that's being negotiated remove the restrictions on growing assets? 
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on April 14, 2018, 07:03:26 AM
Medicocre quarter at best. I see one time gains tax of $1.6B, partly offset by $0.67B in litigation costs. This does not look cheap, considering that WFC likely will tread water for years. I think they will have to invest more in their online platforms for both brokerage and banking. Both look really stale and are clumsy to operate.
Title: Re: WFC - Wells Fargo
Post by: mjs111 on April 14, 2018, 07:12:22 AM
guys, will this fine that's being negotiated remove the restrictions on growing assets?


No, not necessarily.  The fine that's being negotiated is to settle all matters being investigated by the OCC and the CFPB.  The asset cap was put in place by the Federal Reserve.  I say not necessarily since I assume if the OCC and CFPB walk away satisfied it will carry some weight, but the asset cap decision rests with the Federal Reserve, not the OCC and CFPB.

Mike
Title: Re: WFC - Wells Fargo
Post by: Viking on April 14, 2018, 08:25:59 AM
My challenge with Wells Fargo is understanding where they are in their transformation and managing their issues. The sense I have is they are in the mid innings (not late innings). I also wonder if all the skeletons are out of the closet or if more issues will surface. Their revenue is not growing while expenses are. On the call the CEO tried to address the question “rumour has it all of your good people are leaving”. Not good. My read is it will be 2020 before they have put their issues behind them (if nothing new comes along).

And then you look at the other big US banks. All are growing revenue and managing costs (costs growing less than revenue driving operating leverage). They are all driving their strategy and investing in the future. Earnings per share will be up significantly this year (25 to 35% depending on the bank) and next year (15-20% depending on the bank). And these other banks are currently trading at cheap valuations. Why hold WFC when you can hold another large US bank and make solid, pretty predictable returns?

I bought WFC early last year thinking the worst was behind it. Fortunately, I held my WFC shares for only a few weeks before deciding to flip into C (and then to BAC later in the summer). I expect the other big US banks to continue to outperform WFC over the next 12 months.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on April 14, 2018, 01:48:26 PM
Thank you for sharing, gents,

I feel like I'm hit by a cub over my head - the negative way. Mr. Sloan isen't up to his job, by cleaning up this mess effectively, ref. my post #674 in this topic.

I'm out monday.
Title: Re: WFC - Wells Fargo
Post by: shalab on April 15, 2018, 07:47:22 AM
My family is a wellsfargo customer and shareholders. The branch service is excellent. The technology platform is adequate.

I am not impressed with the CEO but WEB says he is working hard. He may be replaced like the Citi CEOs.

That said, I think Wells is a good investment. 6% returns are guaranteed - 3% from dividend yield and 3% from share buy-backs. Both these are better than JPM. I think it will be in the 10-15% range for the next few years.

I liked Q1 report - especially that the underwriting standards are being tightened. It is a good sign. WFC and USB are the best run large banks in the USA. They should get out of the no-growth situation by end of the year.

My challenge with Wells Fargo is understanding where they are in their transformation and managing their issues. The sense I have is they are in the mid innings (not late innings). I also wonder if all the skeletons are out of the closet or if more issues will surface. Their revenue is not growing while expenses are. On the call the CEO tried to address the question “rumour has it all of your good people are leaving”. Not good. My read is it will be 2020 before they have put their issues behind them (if nothing new comes along).

And then you look at the other big US banks. All are growing revenue and managing costs (costs growing less than revenue driving operating leverage). They are all driving their strategy and investing in the future. Earnings per share will be up significantly this year (25 to 35% depending on the bank) and next year (15-20% depending on the bank). And these other banks are currently trading at cheap valuations. Why hold WFC when you can hold another large US bank and make solid, pretty predictable returns?

I bought WFC early last year thinking the worst was behind it. Fortunately, I held my WFC shares for only a few weeks before deciding to flip into C (and then to BAC later in the summer). I expect the other big US banks to continue to outperform WFC over the next 12 months.
Title: Re: WFC - Wells Fargo
Post by: racemize on April 15, 2018, 08:58:03 AM
That said, I think Wells is a good investment. 6% returns are guaranteed - 3% from dividend yield and 3% from share buy-backs. Both these are better than JPM. I think it will be in the 10-15% range for the next few years.

I see the div yield difference of 3% for WFC vs 2% for JPM.  I'm not getting the share buyback difference though?

WFC authorized $11.5 billion for 2017 CCAR, which is a yield of 4.6% off of closing price;
JPM authorized $19.4 billion for 2017 CCAR, which is a yield of 5.2% off of closing price.

I imagine JPM will have a better 2018 CCAR and increase capital return more than WFC given the exceptional performance by JPM and the lower earnings growth/regulatory overhang of WFC.

Both trade at the same earnings multiple.


Or, perhaps consider Citi, who trades at a lower multiple than WFC, has more room to improve, but less overhang. 

Div yield is 1.8% (much lower, but by 1.2%);
Share repurchase of $15.6 billion for a yield of 8.6%, and these repurchases will probably be more effective than WFC or JPM, given the lower price to TBV (assuming they get profitability to a decent level at some point (maybe 2020).



I also think WFC tends to issue more shares, so the net buyback isn't as good.  JPM share count consistently dropped over the last few years; WFC is not as consistent.  I didn't run the check like I did with JPM/C/BAC though, so this is off recall.  Please correct if I'm off here.
Title: Re: WFC - Wells Fargo
Post by: shalab on April 15, 2018, 11:18:40 AM
I did YoY calculations for JPM and WFC. JPM was low 2% in buy backs where as WFC was high 2% (~2.77% I think). In addition - these are the numbers for WFC and JPM.

Last 5 year earning growth: 21% for WFC, 10.5% JPM
Last 5 year book value growth: 10% for WFC, 7% for JPM

When WEB said his best ideas are in berkshire, he wasn't joking - as with the Korean stocks (where he made 500 mm for Berkshire through Samsung).

I too don't like stock issuance by WFC but one of the advantages of low stock price is that many of the RSUs will expire worthless. This increases bang for the buck of share re-purchases.

That said, I think Wells is a good investment. 6% returns are guaranteed - 3% from dividend yield and 3% from share buy-backs. Both these are better than JPM. I think it will be in the 10-15% range for the next few years.

I see the div yield difference of 3% for WFC vs 2% for JPM.  I'm not getting the share buyback difference though?

WFC authorized $11.5 billion for 2017 CCAR, which is a yield of 4.6% off of closing price;
JPM authorized $19.4 billion for 2017 CCAR, which is a yield of 5.2% off of closing price.

I imagine JPM will have a better 2018 CCAR and increase capital return more than WFC given the exceptional performance by JPM and the lower earnings growth/regulatory overhang of WFC.

Both trade at the same earnings multiple.


Or, perhaps consider Citi, who trades at a lower multiple than WFC, has more room to improve, but less overhang. 

Div yield is 1.8% (much lower, but by 1.2%);
Share repurchase of $15.6 billion for a yield of 8.6%, and these repurchases will probably be more effective than WFC or JPM, given the lower price to TBV (assuming they get profitability to a decent level at some point (maybe 2020).



I also think WFC tends to issue more shares, so the net buyback isn't as good.  JPM share count consistently dropped over the last few years; WFC is not as consistent.  I didn't run the check like I did with JPM/C/BAC though, so this is off recall.  Please correct if I'm off here.
Title: Re: WFC - Wells Fargo
Post by: racemize on April 15, 2018, 01:16:49 PM
I did YoY calculations for JPM and WFC. JPM was low 2% in buy backs where as WFC was high 2% (~2.77% I think). In addition - these are the numbers for WFC and JPM.

Last 5 year earning growth: 21% for WFC, 10.5% JPM
Last 5 year book value growth: 10% for WFC, 7% for JPM

When WEB said his best ideas are in berkshire, he wasn't joking - as with the Korean stocks (where he made 500 mm for Berkshire through Samsung).

I too don't like stock issuance by WFC but one of the advantages of low stock price is that many of the RSUs will expire worthless. This increases bang for the buck of share re-purchases.


I suspect CCAR is a bit better for estimating what will happen rather than what has, but even looking back, I'm not sure how well WFC does vs JPM on net share buybacks.  Primarily using valueline for historical values below:

YoY change 2016-2017:
WFC: 4891.6/5016.1 = -2.5%
JPM: 3425.3/3561.2 = -3.8%

Change since 2010:
WFC: 4891.6/5226.8 = -6.4%
JPM: 3425.3/3910.3 = -8.8%

On earnings, 2017 had a pretty big charge for JPM in Q4, and the tax change is pretty big, so here's earnings growth from 2010 to Annualized 2018Q1:
WFC: 1.12*4/2.21 = 102.7% -> 9.2% CAGR
JPM: 2.37*4/3.96 = 139% -> 11.5% CAGR


EDIT: I'm assuming you are also using valueline for those 5 year earnings growth numbers.  I'm really confused how they have WFC at 5 year annual growth of 21%--earnings 5 years ago were $3.89, in 2017 they were 4.10, which is 5% cumulative growth and nowhere close to 20% annual.
Title: Re: WFC - Wells Fargo
Post by: shalab on April 15, 2018, 03:00:24 PM
Yes, I looked at valueline. The growth from 2018-2020 looks identical for these two.

I did YoY calculations for JPM and WFC. JPM was low 2% in buy backs where as WFC was high 2% (~2.77% I think). In addition - these are the numbers for WFC and JPM.

Last 5 year earning growth: 21% for WFC, 10.5% JPM
Last 5 year book value growth: 10% for WFC, 7% for JPM

When WEB said his best ideas are in berkshire, he wasn't joking - as with the Korean stocks (where he made 500 mm for Berkshire through Samsung).

I too don't like stock issuance by WFC but one of the advantages of low stock price is that many of the RSUs will expire worthless. This increases bang for the buck of share re-purchases.


I suspect CCAR is a bit better for estimating what will happen rather than what has, but even looking back, I'm not sure how well WFC does vs JPM on net share buybacks.  Primarily using valueline for historical values below:

YoY change 2016-2017:
WFC: 4891.6/5016.1 = -2.5%
JPM: 3425.3/3561.2 = -3.8%

Change since 2010:
WFC: 4891.6/5226.8 = -6.4%
JPM: 3425.3/3910.3 = -8.8%

On earnings, 2017 had a pretty big charge for JPM in Q4, and the tax change is pretty big, so here's earnings growth from 2010 to Annualized 2018Q1:
WFC: 1.12*4/2.21 = 102.7% -> 9.2% CAGR
JPM: 2.37*4/3.96 = 139% -> 11.5% CAGR


EDIT: I'm assuming you are also using valueline for those 5 year earnings growth numbers.  I'm really confused how they have WFC at 5 year annual growth of 21%--earnings 5 years ago were $3.89, in 2017 they were 4.10, which is 5% cumulative growth and nowhere close to 20% annual.
Title: Re: WFC - Wells Fargo
Post by: AzCactus on May 17, 2018, 07:33:22 AM
Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.   
Title: Re: WFC - Wells Fargo
Post by: nkp007 on May 17, 2018, 07:41:47 AM
Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.

It is worth it.
Title: Re: WFC - Wells Fargo
Post by: walkie518 on May 17, 2018, 07:45:19 AM
Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.

It is worth it.

Management will have to turn every stone and find every flaw before moving forward...
Title: Re: WFC - Wells Fargo
Post by: AzCactus on May 17, 2018, 08:26:04 AM
Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.

It is worth it.

Not if you get an STD and that's what this specific lady has lol
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on May 17, 2018, 11:39:52 AM
Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.

It is worth it.


LOL. Agreed. LT relationships are a different matter.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on June 24, 2018, 03:34:20 AM
Posted by Spekulatius in the C topic, edited by me on purpose to direct the quoting to the WFC DFAST 2018 results:

... I am not even sure that WFC is thr best deal amongst the banks right now. I do think they did decently in the stress test. ...

The DFAST 2018 for WFC was actually what I was most curious about under my reading of FED DFAST 2018 report yesterday. Personally, I think WFC passed the stress test in fine style.

Somehow a bit odd, considering how hard FED has come down on WFC recently with that order not to expand business volume for WFC. I'm speculating here, that FED has been on a mission to get WFC to get its act together. If that is true, based on the stress test result for WFC, the order now seems like some kind of overreaction.
Title: Re: WFC - Wells Fargo
Post by: Rasputin on June 24, 2018, 04:59:16 AM
IMO, the fed view the consent order and ccar separately (2 different buckets).  There are many risks to a bank: capital risk, credit risk, liquidity risk, market risk, operational risk.  The consent order relates to operational risk, while ccar relates to capital risk, credit risk, market risk. 
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on June 24, 2018, 05:49:31 AM
Posted by Spekulatius in the C topic, edited by me on purpose to direct the quoting to the WFC DFAST 2018 results:

... I am not even sure that WFC is thr best deal amongst the banks right now. I do think they did decently in the stress test. ...

The DFAST 2018 for WFC was actually what I was most curious about under my reading of FED DFAST 2018 report yesterday. Personally, I think WFC passed the stress test in fine style.

Somehow a bit odd, considering how hard FED has come down on WFC recently with that order not to expand business volume for WFC. I'm speculating here, that FED has been on a mission to get WFC to get its act together. If that is true, based on the stress test result for WFC, the order now seems like some kind of overreaction.

I agree that WFC does did well, as did the Subs of the European banks by the way. I found it surprising how much of a hit the investman banks took (G, MS, even JPM and CS to some extend) and then STT, which I don’t understand at all. MS appears to be very much in risk on mode.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on June 24, 2018, 06:30:23 AM
In the most recent presentation by WFC’s ceo, they are aiming reaching roe of 15% in a few years, through returning capitals and cutting expenses. If they are successful at it, the stock is definitely undervalued, imo.
Title: Re: WFC - Wells Fargo
Post by: Viking on June 28, 2018, 02:25:10 PM
WFC is the big winner of this years CCAR sweepsteaks. While under the Fed’s microscope they were able to deliver what looks to me to be the largest total payout (if I am understanding things properly. Not being allowed to grow their balance sheet may have helped them get approval to return more capital. Dividend of $0.43 = yield of 3.1% (on share price of $55).

“the Company expects that it will, subject to approval by the Company’s Board of Directors, increase its third quarter 2018 common stock dividend to $0.43 per share from $0.39 per share. The plan also includes higher levels of common stock repurchases1 – up to $24.5 billion for the four-quarter period (third quarter 2018 through second quarter 2019), compared with Wells Fargo’s 2017 Capital Plan, which covers the third quarter of 2017 through the second quarter of 2018 and includes up to $11.5 billion of common stock repurchases1, of which $8.5 billion of common stock has been repurchased1, 2 through the first quarter of 2018. In addition, the Company may consider redemptions or repurchases of other capital securities as part of the plan.”
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on June 28, 2018, 04:19:26 PM
$$$$ 8)
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on July 14, 2018, 01:47:27 AM
For those further interested in the discrete tax hit that WFC was subject to under 2018Q2, here (https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc.) is a link to a Wikipedia article about South Dakota v. Wayfair, Inc.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on July 18, 2018, 01:25:14 PM
Ouch- that’s gotta hurt:
https://www.google.com/amp/s/www.yahoo.com/amphtml/finance/news/wells-fargo-automated-high-net-worth-wealth-management-advisors-faced-sales-pressure-151535558.html

Doesn’t make the sales pitch easier going forward, that’s for sure.
Title: Re: WFC - Wells Fargo
Post by: Viking on July 18, 2018, 03:58:25 PM
Ouch- that’s gotta hurt:
https://www.google.com/amp/s/www.yahoo.com/amphtml/finance/news/wells-fargo-automated-high-net-worth-wealth-management-advisors-faced-sales-pressure-151535558.html

Doesn’t make the sales pitch easier going forward, that’s for sure.

I am wondering just how messed up this company is. The negative stories just keep coming...
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on July 19, 2018, 05:40:58 AM
Ouch- that’s gotta hurt:
https://www.google.com/amp/s/www.yahoo.com/amphtml/finance/news/wells-fargo-automated-high-net-worth-wealth-management-advisors-faced-sales-pressure-151535558.html

Doesn’t make the sales pitch easier going forward, that’s for sure.

I am wondering just how messed up this company is. The negative stories just keep coming...

It appears like rotten to the core in terms of culture. Not worth investing in, imo and certainly not worth a premium to BAC. I think even C might be a better managed bank at this point.

In the end, this all will mean years of forgone growth for WFC.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on July 19, 2018, 06:21:16 AM
I think it's important to keep the time frame of this "socalled "new" bad" story about the activities at WFC in mind.
Title: Re: WFC - Wells Fargo
Post by: longinvestor on July 19, 2018, 06:33:17 AM
I am wondering if WFC goes the way of American Express, some 20 years ago. They spun off the investment management business into Ameriprise. I was a customer of Ameriprise, the bank portion was OK, the investment management part was also rotten.

Hmmm...investment management=Rotten then, rotten now. Buffett promptly unloaded the Ameriprise stock. Wonder if this could be on the cards for WFC? Return to roots. 
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on July 19, 2018, 07:15:19 AM
I think it's important to keep the time frame of this "socalled "new" bad" story about the activities at WFC in mind.
The time frame when these changes occurred in wealth management is the concerning part. It looks like they just ramped this up, after the problems at the bank gave surfaced and management was presumably fixing them. Now it seems that at the same time, they amped up the sales pressure at their investment advisory business to maybe compensate.

Seems rotten at the core to me.
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on July 19, 2018, 07:57:46 AM
I think it's important to keep the time frame of this "socalled "new" bad" story about the activities at WFC in mind.
The time frame when these changes occurred in wealth management is the concerning part. It looks like they just ramped this up, after the problems at the bank gave surfaced and management was presumably fixing them. Now it seems that at the same time, they amped up the sales pressure at their investment advisory business to maybe compensate.

Seems rotten at the core to me.

That's definitely the culture.
Title: Re: WFC - Wells Fargo
Post by: RadMan24 on July 19, 2018, 12:18:18 PM
Take your rotten comments somewhere else. They're doing the right thing, fixing problems, getting back on track. All of these issues are minor fixes, makes for great negative headlines, and punitive commentary.
Title: Re: WFC - Wells Fargo
Post by: oddballstocks on July 19, 2018, 01:31:56 PM
Take your rotten comments somewhere else. They're doing the right thing, fixing problems, getting back on track. All of these issues are minor fixes, makes for great negative headlines, and punitive commentary.

Have you ever worked anywhere with a toxic culture?  A few platitudes and signs on the wall don't fix things.

Not everything can be fixed by armchair quarterbacking...
Title: Re: WFC - Wells Fargo
Post by: Jurgis on July 19, 2018, 01:39:41 PM
Take your rotten comments somewhere else.

???  ::)

...

Actually, don't.
Title: Re: WFC - Wells Fargo
Post by: maxthetrade on July 19, 2018, 01:52:01 PM
Well it takes time to turn an oil tanker, but if they can get their cost structure in line with those of the other big banks (and I can't see a reason why they shouldn't) than the stock is cheap and a better deal than BOA. I'll gladly add in the low fifties. 
Title: Re: WFC - Wells Fargo
Post by: Gregmal on July 19, 2018, 03:18:43 PM
Take your rotten comments somewhere else. They're doing the right thing, fixing problems, getting back on track. All of these issues are minor fixes, makes for great negative headlines, and punitive commentary.

Have you ever worked anywhere with a toxic culture?  A few platitudes and signs on the wall don't fix things.

Not everything can be fixed by armchair quarterbacking...

I think it's even more evident at an institution like WFC or really any large bank. The branches don't really have a great association/relationship with corporate. The people there, for the most part, are paid poorly and know how much more the big wigs make. If something goes wrong, it's always them who get whacked first and they know it. They have to see all the branches and jobs being cut across the country which is likely a constant stress. I'd imagine less so now, but certainly not too long ago there was also a stigma attached to working for "the evil greedy banks". Not to mention the mood in the branches often resembles the excitement one has during activities like watching paint dry or water boil.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on July 19, 2018, 04:28:53 PM
Ouch- that’s gotta hurt:
https://www.google.com/amp/s/www.yahoo.com/amphtml/finance/news/wells-fargo-automated-high-net-worth-wealth-management-advisors-faced-sales-pressure-151535558.html

Doesn’t make the sales pitch easier going forward, that’s for sure.

I feel they are doing the right thing. This is the Fidelity’s model.
People who are complaining here is the “portfolio manager”/advisors, because their pay is going down. The old model is less cost efficient and the new model is better for most customers and lower costs. Nowadays customers are becoming  more sophisticated and they know what products they want. For WFC, asset gathering and providing a lot of low costs products to customers is a better business model.

Title: Re: WFC - Wells Fargo
Post by: Spekulatius on July 19, 2018, 04:40:26 PM
Ouch- that’s gotta hurt:
https://www.google.com/amp/s/www.yahoo.com/amphtml/finance/news/wells-fargo-automated-high-net-worth-wealth-management-advisors-faced-sales-pressure-151535558.html

Doesn’t make the sales pitch easier going forward, that’s for sure.

I feel they are doing the right thing. This is the Fidelity’s model.
People who are complaining here is the “portfolio manager”/advisors, because their pay is going down. The old model is less cost efficient and the new model is better for most customers and lower costs. Nowadays customers are becoming  more sophisticated and they know what products they want. For WFC, asset gathering and providing a lot of low costs products to customers is a better business model.

This is fine, when WFC would be upfront about it. At least with Fidelity, the product is in fact low cost  and generally, Fidelity funds or ETFs are OK. I am not in the high networth bucket, but customer service is good too and you get a human on the phone very quickly.

I have and investment account to WFC too and that it definitely not the case with them. I am only stick around with WFC because of the 100 free trades with the PMA (grandfathered) and recently I am questioning even that.


The problem with WFC is that claim to sell and individualized product, but it’s really an apparently poorly reforming roboadvisor. Is there any reason to stick around with them as a customer or working as a financial advisor for WFC after you read this article?
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on July 19, 2018, 04:57:25 PM
From what I heard, there is a lot of evil financial advisors. A huge percentage of them try to make money by getting the clients to trade more. A lot of them don’t act for the best interests of the clients. The whole industry is rotted like this. Doing this is good for customers as things are more standardized, and WFC won’t get into trouble. Certainly there are execution challenges, but over time these problems are fixable. The old model is probably very profitable for these advisors but not very profitable for shareholders and can’t scale to very big size.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on July 20, 2018, 01:50:26 AM
I think it's important to keep the time frame of this "socalled "new" bad" story about the activities at WFC in mind.
The time frame when these changes occurred in wealth management is the concerning part. It looks like they just ramped this up, after the problems at the bank gave surfaced and management was presumably fixing them. Now it seems that at the same time, they amped up the sales pressure at their investment advisory business to maybe compensate.

Seems rotten at the core to me.

Spekulatius,

Based on your post I've reread the article on Yahoo Finance today. It appears to me now, that I've got the last part of the article totally wrong while reading it the first time, sorry.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on August 04, 2018, 05:00:21 PM
Well Fargo employees won record mega lottery

https://www.nbcconnecticut.com/news/national-international/Santa-Clara-Co-Office-Pool-Wins-543M-Mega-Millions-Jackpot-490005261.html?_osource=SocialFlowFB_CTBrand
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on August 07, 2018, 06:41:33 AM
”All 11 winners work for the bank on Branham Lane, where customers poured in Monday to congratulate them. And the winners must love their jobs, because even after they won the $543 million jackpot last month, they said they planned to keep working. Several of the employees were back at work Monday.
Customers said the office definitely has a different vibe.


https://www.nbcconnecticut.com/news/national-international/Mega-Millions-Winners-Return-to-Work-at-Wells-Fargo-in-San-Jose-490197331.html?_osource=SocialFlowFB_CTBrand
Title: Re: WFC - Wells Fargo
Post by: Jurgis on August 07, 2018, 10:11:54 AM
”All 11 winners work for the bank on Branham Lane, where customers poured in Monday to congratulate them. And the winners must love their jobs, because even after they won the $543 million jackpot last month, they said they planned to keep working...

... since they still can't afford a house in San Jose even with the winnings.  8)  ;D  :P



JK, congrats and all that.

Title: Re: WFC - Wells Fargo
Post by: Spekulatius on August 07, 2018, 10:17:31 AM
These guys would be stupid to stay in CA. It is smart to keep working, until they have figured out what to do with that windfall.

I also wouldn’t recommend to stick with their employer for advice managing their fortune.
Title: Re: WFC - Wells Fargo
Post by: Jurgis on August 07, 2018, 10:31:48 AM
These guys would be stupid to stay in CA. It is smart to keep working, until they have figured out what to do with that windfall.

OT. Actually there are still some affordable and nice places in CA, especially if you don't need to work.
Sinking large part of winnings into Silly Valley RE is probably not the best choice though.
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on August 13, 2018, 06:38:55 AM
Wells Fargo Tests Investor Patience With New Scandal Details

https://www.bloomberg.com/news/articles/2018-08-12/wells-fargo-investors-patience-tested-anew-with-scandal-details (https://www.bloomberg.com/news/articles/2018-08-12/wells-fargo-investors-patience-tested-anew-with-scandal-details)
Title: Re: WFC - Wells Fargo
Post by: dutchman on November 07, 2018, 05:55:59 AM
guys what does the Dem house win mean for wfc's current predicament ? Will there now be more investigations which make it likely the growth cap will remain?
Title: Re: WFC - Wells Fargo
Post by: rb on November 07, 2018, 09:38:40 AM
Nothing.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on November 16, 2018, 10:56:04 AM
Any ideas why they are doing this?

Wells Fargo Wants a Bigger Down Payment on That House in Greenwich
https://finance.yahoo.com/news/wells-fargo-wants-bigger-down-100000466.html

Title: Re: WFC - Wells Fargo
Post by: walkie518 on November 16, 2018, 11:03:45 AM
Any ideas why they are doing this?

Wells Fargo Wants a Bigger Down Payment on That House in Greenwich
https://finance.yahoo.com/news/wells-fargo-wants-bigger-down-100000466.html
this might be a little backwards

the problem was more cultural than about the underwriting on the loans themselves

before the latest headline crisis, Wells was already stepping in its own way, unfortunately, it looks to be getting worse
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on November 16, 2018, 03:14:02 PM
Any ideas why they are doing this?

Wells Fargo Wants a Bigger Down Payment on That House in Greenwich
https://finance.yahoo.com/news/wells-fargo-wants-bigger-down-100000466.html

Well they are obviously concerned about credit risk with jumbo mortgages. It shows that they do their own thinking, for the better or the worse.
Title: Re: WFC - Wells Fargo
Post by: Cigarbutt on December 05, 2018, 07:19:46 AM
Thought the following was helpful:
https://markets.on.nytimes.com/research/stocks/news/press_release.asp?docTag=201811201630BIZWIRE_USPRX____BW5741&feedID=600&press_symbol=284853

Use the link: https://cc.talkpoint.com/gold006/120418a_as/?entity=25_5TQY87E

Opinion: WFC is slowly going back to its long term potential.
It doesn't mean it will be a straight line though.
Title: Re: WFC - Wells Fargo
Post by: Viking on December 05, 2018, 11:58:24 AM
Cigarbutt, thanks for posting. I wonder if WFC has not turned the corner. They look to have a couple of nice catalysts moving forward. I like that they are publishing hard expense targets for each of the next couple of years.

One wild card will be the Democrats when they get going in the House in the new year... i think they are going to try and score points by going after a few of the big banks and WFC remains an easy target; although Goldman might be a more popular pick.
Title: Re: WFC - Wells Fargo
Post by: Rasputin on December 08, 2018, 08:32:47 PM
From Q3 18 10-Q

"As of the close of business on October 29, 2018, 110,646 unexercised warrants expired, and the holders of the unexercised warrants are no longer entitled to receive any shares of our common stock."

saves us couple million bucks lol...weird
Title: Re: WFC - Wells Fargo
Post by: ander on December 10, 2018, 07:38:01 AM
It's been some time since someone has made the investment / valuation case on buying WFC here. I was wondering if anyone could share their thoughts re: the buy case today and estimate of intrinsic value today. Thanks.
Title: Re: WFC - Wells Fargo
Post by: Dalal.Holdings on December 10, 2018, 11:46:23 AM
The buy case looks fantastic...buy WFC for the same price as in early 2014, but with fewer shares outstanding and a higher dividend. If interest rates rise, it looks even better in the long term.
Title: Re: WFC - Wells Fargo
Post by: sleepydragon on December 10, 2018, 11:52:33 AM
remind me a couple years ago when AXP got into trouble with Costco. Stock was at 50ish. I bought as much as I could. It's now doubled. AXP is similar to WFC in that Buffett would like to buy more but couldn't due to 10% limits.
Title: Re: WFC - Wells Fargo
Post by: rb on December 10, 2018, 02:42:56 PM
Well at Wells non interest expenses are already going down (they're guided to go down even more). So pretax is gonna go back over 30 Bn. So Let's say 30 Bn pretax. Figure a tax rate of what? 24%? Then after tax income is $22.8 Bn. Plug into a simple DDM with r=9% and g=4% and you get a value of $474 Bn. Let's ding them 10% cause they've been naughty, new we're down to 427 Bn. Take out 24 Bn of preferreds and you get a $403 billion valuation against a 230 Billion market cap. Not bad!

Add to this that these guys have been buying back stock like it's going out of style. $13.3 Bn YTD up almost 100% YoY. $7Bn last quarter alone. If the stock says at these prices for an extended period these buybacks are gonna get seriously accretive. We may consider writing Janet Yellen a thank-you note.
Title: Re: WFC - Wells Fargo
Post by: gary17 on December 10, 2018, 04:19:11 PM
RB, what's the equation for your model.  Sorry , didn't go to business school.
What's the assumption behind the 9% .  What would you get in case of JPM and BAC?
Title: Re: WFC - Wells Fargo
Post by: khturbo on December 10, 2018, 04:34:20 PM
Well at Wells non interest expenses are already going down (they're guided to go down even more). So pretax is gonna go back over 30 Bn. So Let's say 30 Bn pretax. Figure a tax rate of what? 24%? Then after tax income is $22.8 Bn. Plug into a simple DDM with r=9% and g=4% and you get a value of $474 Bn. Let's ding them 10% cause they've been naughty, new we're down to 427 Bn. Take out 24 Bn of preferreds and you get a $403 billion valuation against a 230 Billion market cap. Not bad!

Add to this that these guys have been buying back stock like it's going out of style. $13.3 Bn YTD up almost 100% YoY. $7Bn last quarter alone. If the stock says at these prices for an extended period these buybacks are gonna get seriously accretive. We may consider writing Janet Yellen a thank-you note.

Although I agree the stock is cheap, your numbers look a bit funny here. You seem to be ignoring equity needed to fund growth, no? If I'm assuming 15% ROTE then you'd need to retain .04/.15 = ~26% of earnings to fund the 4% growth. Or are you assuming that they can grow on a stagnant equity base? If you used your discount assumptions with expanding equity you'd still get a fair value of ~$70 or so.
Title: Re: WFC - Wells Fargo
Post by: khturbo on December 10, 2018, 04:36:45 PM
RB, what's the equation for your model.  Sorry , didn't go to business school.
What's the assumption behind the 9% .  What would you get in case of JPM and BAC?

DDM is the dividend discount model. It's a valuation model defined as the following:

free cash flow / (discount rate - perpetual growth rate)

It's mathematically equivalent to a normal DCF if the growth is the same across all periods. With those inputs of 9% discount rate and 4% perpetual growth rate you'd divide by .05 which is the same as saying 20x free cash flow / owner's earnings.
Title: Re: WFC - Wells Fargo
Post by: rb on December 10, 2018, 06:16:50 PM
RB, what's the equation for your model.  Sorry , didn't go to business school.
What's the assumption behind the 9% .  What would you get in case of JPM and BAC?

DDM is the dividend discount model. It's a valuation model defined as the following:

free cash flow / (discount rate - perpetual growth rate)

It's mathematically equivalent to a normal DCF if the growth is the same across all periods. With those inputs of 9% discount rate and 4% perpetual growth rate you'd divide by .05 which is the same as saying 20x free cash flow / owner's earnings.
Gary, let me expand a bit on what khturbo said.

Yes the DDM is the dividend discount model. The formula is P=D*(1+g)/(r-g). Where P is the price, D=dividend, g=perpetual growth rate, and r=required rate of return. You can replace the dividend with owner earnings or div+buybacks or something like that.

If you haven't gone to business school, the DDM is a very quick DCF. If you're into investing you should learn it. If you went to a technical school, you'll recognize very quickly that it's a geometric progression.
Title: Re: WFC - Wells Fargo
Post by: gary17 on December 10, 2018, 06:30:37 PM
RB, what's the equation for your model.  Sorry , didn't go to business school.
What's the assumption behind the 9% .  What would you get in case of JPM and BAC?

DDM is the dividend discount model. It's a valuation model defined as the following:

free cash flow / (discount rate - perpetual growth rate)

It's mathematically equivalent to a normal DCF if the growth is the same across all periods. With those inputs of 9% discount rate and 4% perpetual growth rate you'd divide by .05 which is the same as saying 20x free cash flow / owner's earnings.
Gary, let me expand a bit on what khturbo said.

Yes the DDM is the dividend discount model. The formula is P=D*(1+g)/(r-g). Where P is the price, D=dividend, g=perpetual growth rate, and r=required rate of return. You can replace the dividend with owner earnings or div+buybacks or something like that.

If you haven't gone to business school, the DDM is a very quick DCF. If you're into investing you should learn it. If you went to a technical school, you'll recognize very quickly that it's a geometric progression.

Thanks. Yes my background is in engineering. I guess with any model it’s garbage in , garbage out...

g=4% is that reasonable
r= 9% seems high given the inflation is targeting 2%?
Title: Re: WFC - Wells Fargo
Post by: rb on December 10, 2018, 06:34:39 PM
I agree r at 9% is high. 8% is probably more appropriate. I was trying to be conservative when i did the thing. You lower r, P goes up.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on December 10, 2018, 07:55:06 PM
I agree r at 9% is high. 8% is probably more appropriate. I was trying to be conservative when i did the thing. You lower r, P goes up.

If you use these formulas , everything will look cheap.
Title: Re: WFC - Wells Fargo
Post by: rb on December 10, 2018, 08:00:06 PM
I agree r at 9% is high. 8% is probably more appropriate. I was trying to be conservative when i did the thing. You lower r, P goes up.

If you use these formulas , everything will look cheap.
Great! Explain to me where I'm going wrong? Is g wrong when long run nominal GDP growth is gonna be somewhere around 4%. Or is r wrong at 9% when you have the 10 year Treasury at 2.85? What should the right numbers be?
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on December 10, 2018, 08:26:18 PM
I agree r at 9% is high. 8% is probably more appropriate. I was trying to be conservative when i did the thing. You lower r, P goes up.

If you use these formulas , everything will look cheap.
Great! Explain to me where I'm going wrong? Is g wrong when long run nominal GDP growth is gonna be somewhere around 4%. Or is r wrong at 9% when you have the 10 year Treasury at 2.85? What should the right numbers be?

The model is correct, but almost any dividend stock will look cheap when you plug it in the model. the question then become is WFC cheaper than others?

The biggest issue is longevity of growth. Very often, something bad happens and growth is reset, dividends are cut etc. If the assumption regarding longevity of growth is correct, almost any stock will look cheap.
Title: Re: WFC - Wells Fargo
Post by: rb on December 10, 2018, 08:48:18 PM
Well to start with you plug in the numbers in and look at what looks cheap. Not so many things do, despite what you think. Otherwise I'd be out there buying up a storm.

One reason WFC looks good, is because, well... it's a good bank. But banks look pretty good these days. One reason they do, they're cheap. Also as I've mentioned before, they don't have a lot of depreciable assets. Bank assets in the US are in really good shape these days. Household debt levels at good as well overall. So do you want to buy Wells at 7x pretax or would you rather buy Honeywell at 13x pretax?
Title: Re: WFC - Wells Fargo
Post by: rb on December 10, 2018, 09:38:01 PM
The required capital ratio is included in the fact that they are well over it as are pretty much all the majours, not just Wells.

How would you value financials on the back of an envelope? What's your valuation for the thing? Is it overvalued? How are they not still top of the line? Are they under-earning on their assets? Do they have a pile of overvalued assets that are sucking wind? Please point me in the right direction cause I would really like to know where I am really wrong here.
Title: Re: WFC - Wells Fargo
Post by: mwtorock on December 11, 2018, 06:14:59 AM
remind me a couple years ago when AXP got into trouble with Costco. Stock was at 50ish. I bought as much as I could. It's now doubled. AXP is similar to WFC in that Buffett would like to buy more but couldn't due to 10% limits.

Charlie said wfc is probably even in better position than before, and it is one of the holdings he has in Daily Journal.
Title: Re: WFC - Wells Fargo
Post by: Rasputin on December 11, 2018, 06:17:06 AM
wfc is daily journal's largest holding, mine too as of yesterday.
Title: Re: WFC - Wells Fargo
Post by: JBTC on December 11, 2018, 06:24:30 AM
The buy case looks fantastic...buy WFC for the same price as in early 2014, but with fewer shares outstanding and a higher dividend. If interest rates rise, it looks even better in the long term.

Earnings per share didn't seem to grow much over the past 4 years - why should the stock go up?
Title: Re: WFC - Wells Fargo
Post by: Rasputin on December 11, 2018, 07:19:11 AM
Yes, reported annual eps has been around $4 since 2014, and I have them at $4.25 for 2018.

But that's the past, and reported eps is just the beginning.  I go through each line item on both revenue side and expense side, and try to figure out where reported eps is going over the next 5 years.

Based on what I see, and my experience going through much worse problems at BAC, I'm satisfied that reported eps in in 5 years will be far higher than 2018. 
Title: Re: WFC - Wells Fargo
Post by: mcliu on December 11, 2018, 07:42:17 AM
How do you guys choose which banks to invest in given that they're all trading at pretty low valuation? JPM, BAC, WFC, C? Or even GS and MS?
Title: Re: WFC - Wells Fargo
Post by: Gregmal on December 11, 2018, 07:46:54 AM
How do you guys choose which banks to invest in given that they're all trading at pretty low valuation? JPM, BAC, WFC, C? Or even GS and MS?

Just look at what Berkshire owns...
Title: Re: WFC - Wells Fargo
Post by: boilermaker75 on December 11, 2018, 07:54:02 AM
wfc is daily journal's largest holding, mine too as of yesterday.

My second largest holding, behind BRKB.
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on December 11, 2018, 08:39:30 AM
How do you guys choose which banks to invest in given that they're all trading at pretty low valuation? JPM, BAC, WFC, C? Or even GS and MS?

Tough isn't it?  I think maybe you could argue prefer USB because it is smaller with more room to grow and has a similar historical return profile/quality to WFC.  I don't do the pure investment banks because it seems like they are great businesses....for the employees.  I think I prefer WFC over BAC for lower exposure to IB and I don't like the huge BAC exposure to the wire house business.  JPM...tough...best CEO but how long and WFC is obviously less beloved right now. 

But I've not done anything, probably because these guys have pretty much all almost gone bust like three times in my memory and have been reformed to make it a lot easier/palatable to wipe out the equity holders. 
Title: Re: WFC - Wells Fargo
Post by: khturbo on December 11, 2018, 08:43:27 AM
The required capital ratio is included in the fact that they are well over it as are pretty much all the majours, not just Wells.

How would you value financials on the back of an envelope? What's your valuation for the thing? Is it overvalued? How are they not still top of the line? Are they under-earning on their assets? Do they have a pile of overvalued assets that are sucking wind? Please point me in the right direction cause I would really like to know where I am really wrong here.

Back of the envelope I'd take a through the cycle ROTA and multiply by the leverage ratio to get a through the cycle ROTE. I use 15% ROTE, that same 4% growth number, and a discount rate of 10%. With $31.49 of TBV I get NPV = (31.49*(.15-.04))/(.10-.04) = ~$57.

Obviously you can feel different about any of those numbers, but the biggest difference here is that you aren't  deducting the portion of earnings that WFC needs to grow that 4% over the long-term. If you want to say that they're overcapitalized by $10bb or $20bb or whatever then maybe you pull some equity out of the model, which will get you a higher ROTE, then add the value of the excess capital back on top of the resulting value, but when you just use actual earnings as the numerator you're assuming they never need any more capital ever. That might be true for another business but not a bank.
Title: Re: WFC - Wells Fargo
Post by: LightWhale on December 11, 2018, 09:11:40 AM
How do you guys choose which banks to invest in given that they're all trading at pretty low valuation? JPM, BAC, WFC, C? Or even GS and MS?

One option is to buy VFH, Vanguard's Financials ETF. The above banks all comprise the largest holdings, together with...BRK.
https://investor.vanguard.com/etf/profile/portfolio/vfh

I hope that proposing an ETF doesn't turn me into a value investing sinner.
Title: Re: WFC - Wells Fargo
Post by: LowIQinvestor on December 11, 2018, 10:04:31 AM
Be careful, I literally just bought a ton of Wells Fargo which means we are headed for a Depression....

never thought WFC would yield 3.5% and trade at single digit PE in this macro environment

Godspeed
Title: Re: WFC - Wells Fargo
Post by: aws on December 11, 2018, 10:23:14 AM
First shares traded this month were at a 55 handle and now we are already at a 47 handle six days into the month.  We haven't even gotten to the buyback blackout period either.  Crazy how quickly the narrative has shifted from higher rates equal higher profits to potential inverted yield curve destroying borrow-short lend-long business model.
Title: Re: WFC - Wells Fargo
Post by: CorpRaider on December 11, 2018, 11:50:13 AM
How do you guys choose which banks to invest in given that they're all trading at pretty low valuation? JPM, BAC, WFC, C? Or even GS and MS?

One option is to buy VFH, Vanguard's Financials ETF. The above banks all comprise the largest holdings, together with...BRK.
https://investor.vanguard.com/etf/profile/portfolio/vfh

I hope that proposing an ETF doesn't turn me into a value investing sinner.

Yeah or pretty much just any value index which is (and has been) heavily overweight financials.
Title: Re: WFC - Wells Fargo
Post by: JBTC on December 11, 2018, 04:50:21 PM
Yes, reported annual eps has been around $4 since 2014, and I have them at $4.25 for 2018.

But that's the past, and reported eps is just the beginning.  I go through each line item on both revenue side and expense side, and try to figure out where reported eps is going over the next 5 years.

Based on what I see, and my experience going through much worse problems at BAC, I'm satisfied that reported eps in in 5 years will be far higher than 2018.

Would you mind sharing what you see - EPS will be far higher because?

Title: Re: WFC - Wells Fargo
Post by: John Hjorth on December 12, 2018, 07:36:55 AM
JBTC,

I'm not Rasputin, but the key here is to do some calculations about the share buybacks for WFC.
Title: Re: WFC - Wells Fargo
Post by: JBTC on December 12, 2018, 06:06:15 PM
JBTC,

I'm not Rasputin, but the key here is to do some calculations about the share buybacks for WFC.

Thank you John. Buybacks alone could make EPS a bit higher, but seem unlikely to make it "far higher" as suggested.

I have to say I am surprised that it's been more than two years since the account-opening scandal initially broke. I thought at the time that by now, the co would have completely sorted everything out and started performing. I assumed it's a fundamentally good company and has good management and culture etc despite some issues.

Do people still think that and why?
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on December 12, 2018, 06:19:07 PM
If they have an asset ceiling for too long (multiple years) then their treasury management is going to become tricky and NIM will contract some for a prolonged period. I don't think WFC is the slam dunk it looks like at the moment. I don't see how earnings grow appreciably with anything but a short term asset ceiling.

I've owned WFC this year. I really like their bank model. I do think I failed to appreciate the significance of the asset ceiling and the unknown of how long it will last.
Title: Re: WFC - Wells Fargo
Post by: rb on December 12, 2018, 07:22:36 PM
If they have an asset ceiling for too long (multiple years) then their treasury management is going to become tricky and NIM will contract some for a prolonged period. I don't think WFC is the slam dunk it looks like at the moment. I don't see how earnings grow appreciably with anything but a short term asset ceiling.

I've owned WFC this year. I really like their bank model. I do think I failed to appreciate the significance of the asset ceiling and the unknown of how long it will last.
At this point I'm not too worried about the asset ceiling. I agree that if it'll be in place for a long time it will cause serious damage. But does the Fed really want to knee cap one of the majour banks? I don't think so. If evidence to the contrary surfaces I will change my opinion.

What I like about the asset ceiling is that management at WFC turned out to be a bit delusional and this served as a big wake-up call. That can be very healthy for a business. Wake up, get your ass in gear, dust off the cobwebs, increase efficiency, etc. Wells seems to be doing that and that's promising. It'll come out a much stronger company on the other end.

What seems to be happening is not so much that they're hurt by the asset ceiling, but that they've taken their foot off the gas a bit as they sort all of this stuff out and JPM and BAC are eating some of their lunch. Frankly that's fine if they sort out their business and come out swinging at the other end. One of the reason why WFC seemed like a slam dunk is that they had a very good business model and the were executing on it. The business model is still there. There were negative headlines, and stock price declines, so it has hair. But then when it was a slam dunk you didn't get this valuation. That's this business of ours. If we want good valuations  we'll have to deal with some hair.

Ask yourself this. Would you own JPM without Jamie in charge?
Title: Re: WFC - Wells Fargo
Post by: nkp007 on December 13, 2018, 06:29:27 AM
They weren't going to lend enough for the asset ceiling to matter.

Hopefully they keep returning tons of capital and this is perceived as a huge cash return story.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on December 13, 2018, 08:18:16 AM
I played with RB‘s formula a bit and can’t really put any fault with it, so I bought shares as well. Using my ownnheuritcs and assuming the bank can grow by 4% in size, buy back 3% of their shares annually and adding a 3.6% dividend yield, I get a 10.6% expected return.

I do want to point out that some pipeline companies I own seem  to look equally good or even better: ENB yields 6.5% and if they can grow by 5%, then the return is 11.5% ( buybacks are unlikely with ENB). WMB gets similar results. Both  WMB and ENB have double digit dividend growth expected for 2019 and 2020, so this makes the current yields look pretty good. But I own these in size already ( and KMI) so WFC fits into the same theme, but with different business opportunities and risks very nicely,
Title: Re: WFC - Wells Fargo
Post by: gary17 on December 13, 2018, 08:20:12 AM
this is the crazy disruption tech that IMO is big risk to banks!
https://www.cnbc.com/2018/12/13/robinhood-goes-after-banks-with-checking-and-savings-accounts.html
Title: Re: WFC - Wells Fargo
Post by: StubbleJumper on December 13, 2018, 09:45:29 AM
this is the crazy disruption tech that IMO is big risk to banks!
https://www.cnbc.com/2018/12/13/robinhood-goes-after-banks-with-checking-and-savings-accounts.html


I wouldn't bee too worried.  We've had outfits like this in Canada for 20 years and they've barely made any market share.  They are a great alternative for people like me who detest in-person transactions and have mainly simple banking needs.  But, as soon as you get somebody with more complex needs or somebody who likes a little bit of hand-holding, the low-cost low-service model doesn't work.  People like that need a full-service bank.

One of the real head-scratchers for me is that these outfits are not used by more people.  It strikes me as a no-brainer for a large segment of the market that they could invest a few hours of time have their their accounts moved to a no-frills provider and save perhaps $5 or $10 per month for perpetuity.  For the misery of a couple of hours of paperwork, a guy with simple needs might save ~$1,000 in charges over the next 10 years, easy peasy.  But, it seems that banking services are very sticky and people are either content to pay their $10/month in service charges or perhaps they just don't want to think of it (financial stuff is hard, right?).

Over time, however, these entrants exert a bit of discipline on the main players and prevent the worst rapacious treatment of customers.  But whatever.  The major banks in the US are going to improve their automation and downsize their branch network anyway, so that streamlined cost structure will enable lower charges to clients.


SJ
Title: Re: WFC - Wells Fargo
Post by: no_free_lunch on December 13, 2018, 10:34:12 AM
I am with you Stubble.  I use a similar service and have found it is an uphill battle getting people to switch.  These institutions hold significant funds on your behalf so trust is a very real issue and the low cost/unknown institution works against them in that regard.
Title: Re: WFC - Wells Fargo
Post by: rb on December 13, 2018, 10:48:45 AM
It's not just trust, but doing anything except simple chequing, savings, credit card can become a headache. Try to send or receive a wire or try to get a certified cheque the next day to buy a car. If you ever went through one of these experiences with a low cost bank you'll swear them off. The experience is made exponentially worse by the fact that when you need one of these services you really need it. You're stressed or pressed for time or whatever.

Furthermore, despite being low cost they didn't beat the big banks on rates for credit products, i.e. mortgages.
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on December 13, 2018, 11:14:04 AM
I also expect the 3% interest on checking to be a bait sad come with balance limits. Otherwise, people will use it as a money market account. I have a checking account with a credit union that  offers interest on checkin, but only up to 20k balance.
Title: Re: WFC - Wells Fargo
Post by: aws on December 13, 2018, 12:21:31 PM
Robinhood must lose a fortune on their free option trading offerings, and this seems like another big money loser for them.  There's no way they can have any net interest margin offering 3% at current interest rates.  Maybe they figure the average user will produce enough fee or other revenue to compensate for the loss on interest margin, but I would have to expect that 3% rates would attract a lot of very expensive customers.  The kind who would just park the maximum allowed for only as long as Robinhood is the best interest rate around, and then move ship at the first opportunity at something better.  If the limits are high that could get expensive quick.  I guess it doesn't matter much when they seem to have unlimited venture capital that doesn't care yet about turning a profit, but something like Moviepass is a good example of how quickly that falls apart when the money dries up.

So anyway I guess they would most likely attract away unprofitable customers from other low cost banks, and then for only as long as they can keep their money losing operations afloat.  It would take a lot more to put a dent in the big banks.
Title: Re: WFC - Wells Fargo
Post by: Sunrider on December 13, 2018, 12:37:40 PM
No, they monetise differently - they sell the order flow.

Robinhood must lose a fortune on their free option trading offerings, and this seems like another big money loser for them.  There's no way they can have any net interest margin offering 3% at current interest rates.  Maybe they figure the average user will produce enough fee or other revenue to compensate for the loss on interest margin, but I would have to expect that 3% rates would attract a lot of very expensive customers.  The kind who would just park the maximum allowed for only as long as Robinhood is the best interest rate around, and then move ship at the first opportunity at something better.  If the limits are high that could get expensive quick.  I guess it doesn't matter much when they seem to have unlimited venture capital that doesn't care yet about turning a profit, but something like Moviepass is a good example of how quickly that falls apart when the money dries up.

So anyway I guess they would most likely attract away unprofitable customers from other low cost banks, and then for only as long as they can keep their money losing operations afloat.  It would take a lot more to put a dent in the big banks.
Title: Re: WFC - Wells Fargo
Post by: cmlber on December 13, 2018, 01:08:16 PM
this is the crazy disruption tech that IMO is big risk to banks!
https://www.cnbc.com/2018/12/13/robinhood-goes-after-banks-with-checking-and-savings-accounts.html

At 1.5x TBV and 10x earnings, you basically have to believe Robinhood will not make Wells Fargo disappear in under 3 years in order to get your money back...  From there it's gravy. 

I'm in the camp of Robinhood having no long-term impact.  There are already plenty of online banks that will pay you 2-2.5%, and the big banks continue to grow deposits.  People don't like change, are too lazy to switch, and still value the convenience of branches & human interaction for certain purposes. 
Title: Re: WFC - Wells Fargo
Post by: rb on December 13, 2018, 01:12:16 PM
Brokerage is capital light. With banking you need capital. Lots of capital, like regulatory capital that regulators look at. Bank regulators also don't like the " "Amazon model" that these guys are talking about. They want banks to make money.

I don't think that they have access to so much capital as people think. Because it doesn't make sense. In the end even if everything works out they're unlikely to make more money that banks currently do. So as an investor why would you forgo returns on your capital for who knows how many years just so you can make 10-15% at some point in the future?
Title: Re: WFC - Wells Fargo
Post by: cmlber on December 13, 2018, 01:29:38 PM
Brokerage is capital light. With banking you need capital. Lots of capital, like regulatory capital that regulators look at. Bank regulators also don't like the " "Amazon model" that these guys are talking about. They want banks to make money.

I don't think that they have access to so much capital as people think. Because it doesn't make sense. In the end even if everything works out they're unlikely to make more money that banks currently do. So as an investor why would you forgo returns on your capital for who knows how many years just so you can make 10-15% at some point in the future?

Capital is the least of their problems at 3% interest on deposits...  What are they going to do, go pay 3% for flighty deposits from the types of customers willing to move around for yield and invest it in treasuries earning 2.7%?  There's a reason if you read closely this offer is "invite-only"... i.e. we want to get marketing buzz on this 3% thing but not really offer it to many people because we'd go broke.
Title: Re: WFC - Wells Fargo
Post by: SHDL on December 13, 2018, 02:42:00 PM
https://www.bloomberg.com/opinion/articles/2018-12-13/robinhood-s-3-interest-checking-is-just-a-money-market-fund?srnd=premium
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on December 13, 2018, 03:04:29 PM
If they have an asset ceiling for too long (multiple years) then their treasury management is going to become tricky and NIM will contract some for a prolonged period. I don't think WFC is the slam dunk it looks like at the moment. I don't see how earnings grow appreciably with anything but a short term asset ceiling.

I've owned WFC this year. I really like their bank model. I do think I failed to appreciate the significance of the asset ceiling and the unknown of how long it will last.
At this point I'm not too worried about the asset ceiling. I agree that if it'll be in place for a long time it will cause serious damage. But does the Fed really want to knee cap one of the majour banks? I don't think so. If evidence to the contrary surfaces I will change my opinion.

What I like about the asset ceiling is that management at WFC turned out to be a bit delusional and this served as a big wake-up call. That can be very healthy for a business. Wake up, get your ass in gear, dust off the cobwebs, increase efficiency, etc. Wells seems to be doing that and that's promising. It'll come out a much stronger company on the other end.

What seems to be happening is not so much that they're hurt by the asset ceiling, but that they've taken their foot off the gas a bit as they sort all of this stuff out and JPM and BAC are eating some of their lunch. Frankly that's fine if they sort out their business and come out swinging at the other end. One of the reason why WFC seemed like a slam dunk is that they had a very good business model and the were executing on it. The business model is still there. There were negative headlines, and stock price declines, so it has hair. But then when it was a slam dunk you didn't get this valuation. That's this business of ours. If we want good valuations  we'll have to deal with some hair.

Ask yourself this. Would you own JPM without Jamie in charge?

First, I agree with the arguments you make about why the asset ceiling could be beneficial. I think I've made them in this thread too and it was certainly my reasoning to continuing holding earlier in the year. However, I'm not convinced the ceiling will only remain for 1 year or so. Consider longer periods:

1. Currently, WFC has $1.87T assets, down from $1.95T (the ceiling) at 12/31/2017. For WFC to increase absolute income, NIM must rise or non-interest income must increase at a rate fast enough to grow overall earnings, potentially with contracting NIM.

2. If WFC wants to continue to expand current and new relationships, they will either need to: (1) cull current relationships; or (2) decrease their L:D ratio. Certainly #2 sounds like a safer bank but that would likely lead to contacting NIM. Further, WFC will always need to leave some buffer between $1.95T and present assets to avoid tripping the ceiling. This will likely lead to more asset sales and a reduction in current and new relationships to promote continued NIM growth.

3a. If the latter of #2 is true (less likely in my opinion, but let's try to evaluate all scenarios), to avoid declining earnings, WFC must: (1) increase non-interest income (fees - given the current bank model); or (2) lend at higher yields. In the short-run, WFC could increase their fees but industry-wide the opposite is occurring. MTB has experienced a contracting deposit base because of increased fees/static yields. Their customers are going elsewhere even though MTB has higher market concentration in their footprints relative to WFC.

It would be difficult to increase fees in the asset management business because trends there are to contracting fees as well. LoC, SBA loans, and those types of asset-lite banking won't move the needle. Wholesale banking expansion would help, but that unit is presently under investigation by the DOJ.

3b. If the former of #2 is true, then WFC is ultimately going to run the risk of losing market share and experience declining efficiency rates. Otherwise, WFC may need to contract their overall footprint to avoid diluting their footprint throughout the country. Contracting the customer base is the anti-thesis of the standard banking business model.

4. WFC will obviously be a bank-holding company going forward. At their size, I believe they have a 11.5% ratio requirement. WFC is only so excessively capitalized. If the idea is buybacks will increase eps then I'd be careful on the math since a dividend increase is more likely within 1-2 years. Without increased earnings, buybacks would cause WFC to trip the 300% commercial exposure. While plenty of banks exceed this, it would be just one more reason for regulators to scrutinize WFC and management.

5. Given present asset growth potential, WFC's interest rate exposure probably slightly overstates exposure to LT rates and slightly understates exposure to ST rates. That divergence will probably widen slowly during each quarter/year with an asset ceiling. The issue for WFC comes from the fact that ST rates seem to be nearing a near-term peak. We are expecting one more hike but, at least today, it's hard to count on too many more rate hikes. Who knows with rates.

While WFC is less rate sensitive relative to BAC or C, they are barely comparable to the House of Dimon. JPM is a machine when it comes to naturally hedging between units/lines of business. Jamie Dimon's CEO career is a mandatory case study for a degree in banking (if one existed).


Ultimately, I agree that WFC is a great bank and it looks cheap, I think I'd rather own BAC then WFC if I wanted high upside. If I want a cheap company that is less risky then either, I'd be in JPM. At the moment, I don't think WFC is the same WFC that Buffett used to rave about...
Title: Re: WFC - Wells Fargo
Post by: Spekulatius on December 13, 2018, 05:02:54 PM
My best guess is that the asset cap will stay in place at least another year. That’s based on the harsh tone in Powels 11/28 letter. It also seems to me that they are pushing for Sloan’s (WFC’s current CEO) to resign. I think WFC will look at 2 years of foregone growth, due to the asset cap. Note that JPM is cranking up and moving into Boston and Washington DC, cities where they didn’t have presence. WFC is not present in MA and barely present in CT and I guess that will remain this way.

Also note that Elizabeth Warren is harsh on WFC, which I think is mostly due to WFC not having a presence in her state. (No constituents to worry about, no one loser his/her job). While I think that this is all somewhat reflected in WFC’s share price, I think it will put a cap on the stocks upside for the time being. FWIW, I one now a few shares.
Title: Re: WFC - Wells Fargo
Post by: dutchman on December 13, 2018, 05:41:56 PM
now that dems have congress, can they further constrain wfc aside from yelling and screaming.?
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on December 13, 2018, 05:46:29 PM
now that dems have congress, can they further constrain wfc aside from yelling and screaming.?

Not easily, just through hearings and public sentiment. They could force infighting between the big-4 through those actions.
Title: Re: WFC - Wells Fargo
Post by: SHDL on December 13, 2018, 05:59:43 PM
Another thing to note regarding the numbers/valuation is their scandal-related litigation costs.  I may not have the exact numbers, but the company did say in their 2017 annual report that the litigation costs included 3.7 bn that were not tax deductible.  Their reported net income for the year was a bit above 20 bn, so one could say that the core business was actually earning > 24 bn and that the normalized P/E (i.e., assuming the litigation expenses are temporary) is already < 10.  That’s probably cheap enough to make this a good investment even if the company does not grow at all. 
Title: Re: WFC - Wells Fargo
Post by: Viking on December 13, 2018, 09:10:50 PM
Is WFC not forcasting pretty aggressive cost reductions each of the next couple of years? Part of this will be taking out all the extra costs associated with the retail scandal (all the extra people they have hhad to hire to correct the issues). WFC also seemed slow to reduce their cost base generally (driven by efficiencies in mobile) so they likely have some catch up here.

Having said all that, an organization can’t cut their way to prosperity. Until they are able to grow the top line it is hard to get too excited about their future. It doesn’t sound like the governement is finoshed with them yet...
Title: Re: WFC - Wells Fargo
Post by: rb on December 14, 2018, 06:17:02 PM
The required capital ratio is included in the fact that they are well over it as are pretty much all the majours, not just Wells.

How would you value financials on the back of an envelope? What's your valuation for the thing? Is it overvalued? How are they not still top of the line? Are they under-earning on their assets? Do they have a pile of overvalued assets that are sucking wind? Please point me in the right direction cause I would really like to know where I am really wrong here.

Back of the envelope I'd take a through the cycle ROTA and multiply by the leverage ratio to get a through the cycle ROTE. I use 15% ROTE, that same 4% growth number, and a discount rate of 10%. With $31.49 of TBV I get NPV = (31.49*(.15-.04))/(.10-.04) = ~$57.

Obviously you can feel different about any of those numbers, but the biggest difference here is that you aren't  deducting the portion of earnings that WFC needs to grow that 4% over the long-term. If you want to say that they're overcapitalized by $10bb or $20bb or whatever then maybe you pull some equity out of the model, which will get you a higher ROTE, then add the value of the excess capital back on top of the resulting value, but when you just use actual earnings as the numerator you're assuming they never need any more capital ever. That might be true for another business but not a bank.
I don't have much to gripe about your approach. As this is all back of the envelope stuff.

One thing is that you're formula is wrong, you've missed one year of growth in the numerator. By fixing that you get $60/share.

Also as I've said previously, in my opinion r at 10% is unreasonable with the 10 year at 2.9%. At these levels, with a historical ERP of 5, r should be 8%. Using 9 you get on the high side. And if you use 9 instead of 10 you get $72 per share instead of $60. Anyway, changing r around is easy for everyone to do according to their feelings on the matter. But I think what's becoming clear is that at 46 it's seriously undervalued any way you slice it.
Title: Re: WFC - Wells Fargo
Post by: khturbo on December 14, 2018, 07:34:39 PM
The required capital ratio is included in the fact that they are well over it as are pretty much all the majours, not just Wells.

How would you value financials on the back of an envelope? What's your valuation for the thing? Is it overvalued? How are they not still top of the line? Are they under-earning on their assets? Do they have a pile of overvalued assets that are sucking wind? Please point me in the right direction cause I would really like to know where I am really wrong here.

Back of the envelope I'd take a through the cycle ROTA and multiply by the leverage ratio to get a through the cycle ROTE. I use 15% ROTE, that same 4% growth number, and a discount rate of 10%. With $31.49 of TBV I get NPV = (31.49*(.15-.04))/(.10-.04) = ~$57.

Obviously you can feel different about any of those numbers, but the biggest difference here is that you aren't  deducting the portion of earnings that WFC needs to grow that 4% over the long-term. If you want to say that they're overcapitalized by $10bb or $20bb or whatever then maybe you pull some equity out of the model, which will get you a higher ROTE, then add the value of the excess capital back on top of the resulting value, but when you just use actual earnings as the numerator you're assuming they never need any more capital ever. That might be true for another business but not a bank.
I don't have much to gripe about your approach. As this is all back of the envelope stuff.

One thing is that you're formula is wrong, you've missed one year of growth in the numerator. By fixing that you get $60/share.

Also as I've said previously, in my opinion r at 10% is unreasonable with the 10 year at 2.9%. At these levels, with a historical ERP of 5, r should be 8%. Using 9 you get on the high side. And if you use 9 instead of 10 you get $72 per share instead of $60. Anyway, changing r around is easy for everyone to do according to their feelings on the matter. But I think what's becoming clear is that at 46 it's seriously undervalued any way you slice it.

Right, all the little stuff is semantics. I would still use the $31.49, but that, along with the exact discount rate or growth rate doesn't really matter.

One interesting thing is that assuming they can hit that ~15% ROTE, even if they don't grow - maybe if the asset cap does stay for a long time - you still get a ~10% IRR at a constant valuation. So it's not like you need a lot of growth from here. And if you put a gun to my head and made me guess over or under on that 15% over the next 10 years I'd probably guess over
Title: Re: WFC - Wells Fargo
Post by: ander on December 15, 2018, 07:21:13 AM
I think part of the opportunity here relative to the other banks is the asset cap. Whenever that comes off we are likely to see a start in earnings acceleration.
Title: Re: WFC - Wells Fargo
Post by: nkp007 on December 15, 2018, 11:17:51 AM
I think part of the opportunity here relative to the other banks is the asset cap. Whenever that comes off we are likely to see a start in earnings acceleration.

The asset cap has NOT been holding back earnings. They're easily operating way below it as they have let certain loan books run-off and reduced amount of commercial real estate loans written due to the aggressiveness of market terms.
Title: Re: WFC - Wells Fargo
Post by: Schwab711 on December 15, 2018, 12:05:38 PM
I think part of the opportunity here relative to the other banks is the asset cap. Whenever that comes off we are likely to see a start in earnings acceleration.

The asset cap has NOT been holding back earnings. They're easily operating way below it as they have let certain loan books run-off and reduced amount of commercial real estate loans written due to the aggressiveness of market terms.

We're 6 months in. Of course it hasn't yet. If WFC is over-capitalized and can't grow, they should be returning 100%+ of earnings. They can't. They will remain over-capitalized until the ceiling is eliminated. It will also affect them from a competitive standpoint as all their existing relationships need more money over time.

Given management incentives not to languish, we could see bad decision making. I don't think mid-$40s is a bad price to enter but it makes me concerned that no one is concerned about the downside to WFC.
Title: Re: WFC - Wells Fargo
Post by: ERICOPOLY on December 15, 2018, 01:44:34 PM
If the idea is buybacks will increase eps then I'd be careful on the math since a dividend increase is more likely within 1-2 years. management.

Same math with buyback or dividend, aside from taxes (assuming your dividend purchases more shares).

If it weren't for this f'ing divorce I would buy WFC.  I'm not allowed to buy anything without her consent.
Title: Re: WFC - Wells Fargo
Post by: John Hjorth on December 15, 2018, 04:12:28 PM
JBTC,

I'm not Rasputin, but the key here is to do some calculations about the share buybacks for WFC.

Thank you John. Buybacks alone could make EPS a bit higher, but seem unlikely to make it "far higher" as suggested.

I have to say I am surprised that it's been more than two years since the account-opening scandal initially broke. I thought at the time that by now, the co would have completely sorted everything out and started performing. I assumed it's a fundamentally good company and has good management and culture etc despite some issues.

Do people still think that and why?

I'm sorry for getting back to you late here, JBTC,

My post quoted above by you did not turn out well, actually. In stead of "buybacks", I actually meant "capital return" [as defined here on CoBF by Viking as the sum of dividends and share buybacks], so, - somehow -, this post is actually triggered by the last post in this topic by ERICOPOLY.

- - - o 0 o - - -

In general, I don't post in topics in the Investments Ideas forum, where I'm not invested - unless it's about the products from the company and such. Some persons here on CoBF calls what WFC is subject to from the FED right now an asset ceiling - I call it a straight jacket. Personally, I sold WFC  back in the middle of April 2018 (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/what-are-you-selling-today/msg330301/#msg330301). My reason for getting back posting is this post by Cigarbutt (http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/wfc-wells-fargo/msg354072/#msg354072).

WFC for me just seems too much beat up by the market right now, and if you think carefully about what Cigarbutt has linked to, it actually contains more than one business strategy going forward for WFC, that could turn out successful - not just successful, but very successful - going forward.
Title: Re: WFC - Wells Fargo
Post by: rb on December 15, 2018, 09:32:08 PM
I have a small bone to pick in the dividends vs. buyback section. They're the same is you think that markets are efficient and MV=IV always. They're also the same if you MV actually equals IV (excluding tax issues). They're also the same if you take your dividends and promptly reinvest them in the stock.

But... If for example WFC gets to hypothetically buy back 50 billion at 67% of IV (1/3 of IV) then they create an extra $25 billion for their shareholders. Hello an extra 11% return! If a company buys back $50 billion at 33% (1/3) over IV then that company is GE and goes from industry titan to people wondering whether Chapter 11 is a possibility. So yea, this stuff matters.
Title: Re: WFC - Wells Fargo
Post by: plato1976 on December 15, 2018, 09:44:04 PM
Is WFC much more preferably against BAC?

If the idea is buybacks will increase eps then I'd be careful on the math since a dividend increase is more likely within 1-2 years. management.

Same math with buyback or dividend, aside from taxes (assuming your dividend purchases more shares).

If it weren't for this f'ing divorce I would buy WFC.  I'm not allowed to buy anything without her consent.
Title: Re: WFC - Wells Fargo
Post by: rb on December 15, 2018, 10:11:50 PM
Some disruptor. Failed to talk to their regulator. And oh yea, they're not a bank.

https://www.marketwatch.com/story/robinhoods-new-checking-accounts-may-not-be-insured-after-all-2018-12-14
Title: Re: WFC - Wells Fargo
Post by: fareastwarriors on December 15, 2018, 10:41:20 PM
Some disruptor. Failed to talk to their regulator. And oh yea, they're not a bank.

https://www.marketwatch.com/story/robinhoods-new-checking-accounts-may-not-be-insured-after-all-2018-12-14

I think it is non-news. They will figure it out and make it work.  Or just move on from, it.

Silicon Valley right? Move fast and break things?
Title: Re: WFC - Wells Fargo
Post by: rb on December 15, 2018, 10:45:27 PM
Some disruptor. Failed to talk to their regulator. And oh yea, they're not a bank.

https://www.marketwatch.com/story/robinhoods-new-checking-accounts-may-not-be-insured-after-all-2018-12-14

I think it is non-news. They will figure it out and make it work.  Or just move on from, it.

Silicon Valley right? Move fast and break things?
Banking regulators tend not to get very enthused about the breaking things part.
Title: Re: WFC - Wells Fargo
Post by: Viking on December 16, 2018, 01:03:53 AM
I have a small bone to pick in the dividends vs. buyback section. They're the same is you think that markets are efficient and MV=IV always. They're also the same if you MV actually equals IV (excluding tax issues). They're also the same if you take your dividends and promptly reinvest them in the stock.

But... If for example WFC gets to hypothetically buy back 50 billion at 67% of IV (1/3 of IV) then they create an extra $25 billion for their shareholders. Hello an extra 11% return! If a company buys back $50 billion at 33% (1/3) over IV then that company is GE and goes from industry titan to people wondering whether Chapter 11 is a possibility. So yea, this stuff matters.

One on the things i look at before investing in a company is what they do with earnings over many years. Are they making decisions that are shareholder friendly (with how they spend earnings)? The company can do three basic things: re-invest in the business (organic growth), aquire another company or return cash to shareholders (dividends or buybacks).

Many companies spend their earnings on expensive aquisitions, many of whick do not work out. GE is the current poster child. There are lots of other big misses like Microsoft’s $8 billion purchase of Nokia (hope i got the total $ correct).

The big banks today are overcapitalized (too much capital). They are cash machines right now. They cannot make aquisitions (of deposit taking institutions) and they look unlikely to make any foreign aquisitions so growth by aquisition looks unlikely. There are some opportunities for organic growth and JPM looks to be most aggressive on this front; BAC looks to be getting a tad more aggressive.

However it is clear that the big banks have decided return of capital to shareholders is the best use of excess cash. This does not bother me for the simple reason that i like the certainty of knowing they are not going to waste it by overpaying for a big aquisition (and destroying shareholder value).

It terms of whether to buy back stock or pay a big dividend the biggest factor to me is how expensive the shares are. Obviously, if shares are cheap (like they appear now for the big banks) i would prefer bigger share repurchases. If shares were trading at 2 x TBV i wo