Author Topic: WFC - Wells Fargo  (Read 302237 times)

RuleNumberOne

  • Newbie
  • *
  • Posts: 4
Re: WFC - Wells Fargo
« Reply #940 on: May 17, 2019, 08:15:17 PM »
I believe WFC's customer relationships are not affected. I recently got a mortgage with WFC on a new home with a 33% loan-to-value. Loan officers at BAC and PNC took me for a ride, making false promises about their mortgage rates, just so that I move my brokerage accounts there. Immediately after I transferred some brokerage accounts to BAC, their loan officer revealed they couldn't make even a 25% loan-to-value mortgage (the reason: I owned 2 homes with no debt and BAC calls that a risk.). The mortgage on my old home had been with BAC.

There is a lot of bait-and-switch that happens at other banks. WFC's loan officer was always 100% truthful, perhaps because WFC has everyone on a tight leash. The ride I took due to the false promises from BAC and PNC cost me at least 0.25% in interest rates. By the time I completed the round-trip, mortgage rates had gone up. This doesn't get reported by Elizabeth Warren.

There is plenty of room on the balance sheet for WFC to remain #1 in home mortgages with an 80% loan-to-value. A year ago, "excellent banker" Tim Sloan had flagged commercial RE as frothy. A few weeks ago, FT said that interest-only commercial RE mortgages have climbed to 2008-2009 levels. WFC can always retreat from such frothy areas.

WFC's NIM was 2.91% in the latest quarter. That is less than the NIM WFC makes on residential mortgages. WFC can retain home mortgage market share while retreating from lower NIM/frothy businesses.


John Hjorth

  • Hero Member
  • *****
  • Posts: 2489
Re: WFC - Wells Fargo
« Reply #941 on: May 17, 2019, 09:00:03 PM »
... - After 7 years, WFC has retired 60% of its original share count (0.93^7 = 0.6). ...

Welcome to CoBF, RuleNumberOne!,

I agree with you on the math [in casu, that (0.93^7) = 0.6], but your conclusion on the calculus is not right. You're calculating shares not bought back at year end year 7, so retired [bought back] shares over 7 years is 40%, not 60%, based on your assumptions [, which matters for your further calculations].
ĒIn the race of excellence Ö there is no finish line.Ē
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

sleepydragon

  • Hero Member
  • *****
  • Posts: 632
Re: WFC - Wells Fargo
« Reply #942 on: May 17, 2019, 09:09:50 PM »
- Imagine the balance sheet, earnings, dividend, and market cap stay frozen for the next 7 years.
- WFC retires 7% of its market cap every year (~$14 billion in buybacks, ~$8 billion in dividends).
- After 7 years, WFC has retired 60% of its original share count (0.93^7 = 0.6).
- Dividend yield would be 3.9%/0.4 = 9.75% of original share price

If WFC continues to do the same in years 7 - 14, the dividend yield would be 24.375% of original share price (9.75% / 0.4).

Assume 2% inflation over 14 years. 1.02 ^ 14 = 1.32.

24.375%/1.32 = 18.5%.

Wouldn't I get an inflation-adjusted 18.5% yield for retirement if the market cap stays the same?

Mktcap will be smaller. You meant the earning remained the same.
I agree, I donít see how much earning will change. WFC is not losing deposits and they will still be making loans.

I am getting a lot ads from them in Facebook about 2.40% 11 month CD. Thatís pretty good rate.

sleepydragon

  • Hero Member
  • *****
  • Posts: 632
Re: WFC - Wells Fargo
« Reply #943 on: May 17, 2019, 09:17:34 PM »
I believe WFC's customer relationships are not affected. I recently got a mortgage with WFC on a new home with a 33% loan-to-value. Loan officers at BAC and PNC took me for a ride, making false promises about their mortgage rates, just so that I move my brokerage accounts there. Immediately after I transferred some brokerage accounts to BAC, their loan officer revealed they couldn't make even a 25% loan-to-value mortgage (the reason: I owned 2 homes with no debt and BAC calls that a risk.). The mortgage on my old home had been with BAC.

There is a lot of bait-and-switch that happens at other banks. WFC's loan officer was always 100% truthful, perhaps because WFC has everyone on a tight leash. The ride I took due to the false promises from BAC and PNC cost me at least 0.25% in interest rates. By the time I completed the round-trip, mortgage rates had gone up. This doesn't get reported by Elizabeth Warren.

There is plenty of room on the balance sheet for WFC to remain #1 in home mortgages with an 80% loan-to-value. A year ago, "excellent banker" Tim Sloan had flagged commercial RE as frothy. A few weeks ago, FT said that interest-only commercial RE mortgages have climbed to 2008-2009 levels. WFC can always retreat from such frothy areas.

WFC's NIM was 2.91% in the latest quarter. That is less than the NIM WFC makes on residential mortgages . WFC can retain home mortgage market share while retreating from lower NIM/frothy businesses.

I too got my home mortgage from WFC and got competing quotes from BAC. BACís quote only gave me 30 day locking of the rate. I didnít feel thatís enough. The WFC agent told me he had clients who was with BAC but BAC couldnít finish the process within 30 days and asked clients to pay more to keep the old rate.
WFC gave me a lock of 3 months, rate was 3.25%
Nobody else could beat it, except BAC agreed to 3.20% but only 30 day lock (their initial quote is 3.50)
This was in 2016

Spekulatius

  • Hero Member
  • *****
  • Posts: 2669
Re: WFC - Wells Fargo
« Reply #944 on: May 17, 2019, 09:27:22 PM »
I had a similar  positive experience with WFC, when I bought a house and sold one at the same time. so for a short period of time (2month) I had two houses with a mortgage, due to duration of the sales process. I got my new mortgage with WFC and it wasnít a problem. It might have helped that I have substantial assets with WF Investments.

I think they might look harder at marginal loans/relationships with the asset cap, and I like this at this point in the cycle.
To be a realist, one has to believe in miracles.

sleepydragon

  • Hero Member
  • *****
  • Posts: 632
Re: WFC - Wells Fargo
« Reply #945 on: May 17, 2019, 09:51:54 PM »
I believe WFC's customer relationships are not affected. I recently got a mortgage with WFC on a new home with a 33% loan-to-value. Loan officers at BAC and PNC took me for a ride, making false promises about their mortgage rates, just so that I move my brokerage accounts there. Immediately after I transferred some brokerage accounts to BAC, their loan officer revealed they couldn't make even a 25% loan-to-value mortgage (the reason: I owned 2 homes with no debt and BAC calls that a risk.). The mortgage on my old home had been with BAC.

There is a lot of bait-and-switch that happens at other banks. WFC's loan officer was always 100% truthful, perhaps because WFC has everyone on a tight leash. The ride I took due to the false promises from BAC and PNC cost me at least 0.25% in interest rates. By the time I completed the round-trip, mortgage rates had gone up. This doesn't get reported by Elizabeth Warren.

There is plenty of room on the balance sheet for WFC to remain #1 in home mortgages with an 80% loan-to-value. A year ago, "excellent banker" Tim Sloan had flagged commercial RE as frothy. A few weeks ago, FT said that interest-only commercial RE mortgages have climbed to 2008-2009 levels. WFC can always retreat from such frothy areas.

WFC's NIM was 2.91% in the latest quarter. That is less than the NIM WFC makes on residential mortgages . WFC can retain home mortgage market share while retreating from lower NIM/frothy businesses.

I too got my home mortgage from WFC and got competing quotes from BAC. BACís quote only gave me 30 day locking of the rate. I didnít feel thatís enough. The WFC agent told me he had clients who was with BAC but BAC couldnít finish the process within 30 days and asked clients to pay more to keep the old rate.
WFC gave me a lock of 3 months, rate was 3.25%
Nobody else could beat it, except BAC agreed to 3.20% but only 30 day lock (their initial quote is 3.50)
This was in 2016

I will just add when I applied for the mortgage, I didnít have any other accounts at WFC. But I had all the accounts at BAC and I am the ďplatinum preferredĒ customers.
 WFCís loan officer did give me a lot of scrutiny when looking at my income and bank statements. I had to write a letter explaining why my income was lower in 2016 compared to 2015. They were very thorough.

RuleNumberOne

  • Newbie
  • *
  • Posts: 4
Re: WFC - Wells Fargo
« Reply #946 on: May 17, 2019, 09:59:03 PM »
John, good catch. Updated calculations, but this time I included dividend reinvestment.

3.9% / (0.93^14) = 10.77%

Assume a tax rate of 37%, after-tax dividend yield is 3.9% * 0.63 = 2.46%. Dividend reinvestment will increase my shares by 1.0246 ^ 14.

10.77% x (1.0246 ^ 14) = 15.12%.

Would beat the S&P 500. S&P yield is 1.9% right now.

Viking

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1454
Re: WFC - Wells Fargo
« Reply #947 on: May 17, 2019, 10:47:20 PM »
Just finished listening to CFO Shrewsbery at Barclays presentation. Good update.
- https://newsroom.wf.com/press-release/corporate-and-financial/wells-fargo-present-2019-barclays-americas-select-franchise?_ga=2.202039705.980588676.1558143175-1146450343.1558143175

One question near the end had to do with expenses at WFC vs peers. He said due to the nature of WFC business they should have the lowest expenses among peers. That is not the case today. He said compliance costs to come out down the road are in the Ďbillionsí.

Earlier in the call he discussed NII. He said it will be down year over year. One (of many) reasons is because they are still selling off some higher risk / higher margin consumer loans (taken on way back in 2009/10). This should help them in the next down turn (selling lower quality loans now).

I am starting to think that the worst may be behind this bank. Lots of parallels with BAC back in 2015 (in terms of negative investor sentiment). 2019 will be noisy for WFC; however, the catalysts are starting to line up:
1.) new CEO announcement
2.) CCAR capital return annoucement in June (something similar to current $32 billion?)
3.) asset cap removal
4.) US economy continues to chug along at 2-2.5% growth

Looking out another year WFC could really start to drive some serious operating leverage (similar to BAC the past couple of years). Top line growth similar to GDP growth and a significant drop in expenses that continues over many years.
« Last Edit: May 18, 2019, 10:13:07 AM by Viking »

RuleNumberOne

  • Newbie
  • *
  • Posts: 4
Re: WFC - Wells Fargo
« Reply #948 on: May 18, 2019, 09:35:17 AM »
Page 8 of WFC's latest 10-Q lists the assets and liabilities by yield.

Between Q12018 and Q12019, their "interest earning deposits with banks" fell by $31 billion. Their total earning assets fell by $30 billion over the same period.
The average current yield for their "deposits with banks" is 2.33%. Other than Treasuries, these are the lowest-yielding assets.

Meanwhile, in the liabilities area, the highest yields are:
  -  "Other time deposits" costing 2.67% increased by $21 billion
  -  "Long-term debt" costing 3.32% increased from $226 billion to $223 billion.

If WFC needs to shrink its balance sheet, it has plenty of room to take down "deposits with banks" from its current $141 billion. Over the last year, total loans have stayed flat - $950-$951 billion.

For comparison, BAC's total loans went up $12 billion between Q1 2018 and Q1 2019: from $932 billion to $944 billion.

It seems poor Tim Sloan is the only victim of this brouhaha. Elizabeth Warren enacted theater for the cameras, with WFC as a prop. Neither WFC's earnings, nor its customers, care. WFC reported an increase in consumer checking customers.

WFC should be able to operate fine for years under this asset cap by trimming "deposits with banks" if needed.

StubbleJumper

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1072
Re: WFC - Wells Fargo
« Reply #949 on: May 18, 2019, 01:03:49 PM »
Just finished listening to CFO Shrewsbery at Barclays presentation. Good update.
- https://newsroom.wf.com/press-release/corporate-and-financial/wells-fargo-present-2019-barclays-americas-select-franchise?_ga=2.202039705.980588676.1558143175-1146450343.1558143175


Earlier in the call he discussed NII. He said it will be down year over year. One (of many) reasons is because they are still selling off some higher risk / higher margin consumer loans (taken on way back in 2009/10). This should help them in the next down turn (selling lower quality loans now).



Does that pass the sniff test?  Seriously, a consumer loan written in 2009/10 that has not yet been written off by 2019 is either mostly already repaid or it's no longer high risk by the solitary virtue of having not already been written off at some point in the past 9 or 10 years.

Am I missing something obvious?


SJ