Author Topic: WFC - Wells Fargo  (Read 515551 times)

LC

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Re: WFC - Wells Fargo
« Reply #1640 on: June 26, 2020, 10:46:27 PM »
Short term I would expect a dividend cut to hurt call options. Long term I would expect a negligible effect
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sleepydragon

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Re: WFC - Wells Fargo
« Reply #1641 on: June 27, 2020, 04:26:18 AM »
Curious as to what people think re the potential effect of a dividend cut on pricing of LEAPS? On the one hand the stock price might get a hit from the cut, on the other hand cost of LEAPS goes down

Call options use expected dividend rates for pricing. The higher the dividends the lower the call price. So dividends cuts are positive for the time value/premium of the options.

sundin

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Re: WFC - Wells Fargo
« Reply #1642 on: June 27, 2020, 10:25:43 AM »
Curious as to what people think re the potential effect of a dividend cut on pricing of LEAPS? On the one hand the stock price might get a hit from the cut, on the other hand cost of LEAPS goes down

Call options use expected dividend rates for pricing. The higher the dividends the lower the call price. So dividends cuts are positive for the time value/premium of the options.

Yes the dividend cut would increase the value of the call however the fall in the underlying stock price would decrease it. The net effect is harder to determine with LEAPs.

bizaro86

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Re: WFC - Wells Fargo
« Reply #1643 on: June 27, 2020, 11:53:34 AM »
Curious as to what people think re the potential effect of a dividend cut on pricing of LEAPS? On the one hand the stock price might get a hit from the cut, on the other hand cost of LEAPS goes down

Do you think WFC is a fundamentally good business? If so, maybe try inverting.

Take a good business that pays zero dividends (say BRK) and think what would happen if they started paying a dividend. My prediction is that if BRK started paying a dividend that would reduce the growth in book value by the amount of the dividend, but that it would immediately trade at a higher valuation multiple. Over a very long period this would hurt call options, but I think the valuation gains from paying the dividend would make it still a net-positive over the term of a LEAP (2 years or less).

Going through this, I think the opposite is true for WFC. While no dividend would mean they increased book value per share, I think it would cause enough selling that P/TBV would decline enough to offset it.

sundin

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Re: WFC - Wells Fargo
« Reply #1644 on: June 28, 2020, 10:03:45 AM »
Like other banks, WFC generates more cash flow than it can reinvest at attractive rates of capital, its investment thesis is based on returning capital via repurchases and dividends. BRK's value is based on Warren's ability to grow at greater than average IRR w/ sufficient dry powder on hand.

Capital allocation decisions are different in that banks need dividends to distribute excess cash flow to not destroy value - would not equate this to it being a bad business.


gary17

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Re: WFC - Wells Fargo
« Reply #1645 on: June 29, 2020, 01:26:29 PM »
Does anyone know if / when they would release the dividend plan for the next year... this is usually released after CCAR but i guess this is a different year...
thanks !

dcollon

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changegonnacome

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Re: WFC - Wells Fargo
« Reply #1647 on: June 29, 2020, 03:00:41 PM »
Dividend cut now confirmed (finally) & hopefully large CECL loan loss reserving in Q2 using an adverse scenario.......barring an extreme second waves the next few years should hopefully have a stream of 'wins' for Scharf - asset cap lifted, expense ratio reduced to peer levels, loan loss reserves released back

Parsad

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Re: WFC - Wells Fargo
« Reply #1648 on: June 29, 2020, 05:01:08 PM »
Dividend cut now confirmed (finally) & hopefully large CECL loan loss reserving in Q2 using an adverse scenario.......barring an extreme second waves the next few years should hopefully have a stream of 'wins' for Scharf - asset cap lifted, expense ratio reduced to peer levels, loan loss reserves released back

This situation is not that dissimilar to BAC back in 2012 after it was coming out of the financial crisis and had a number of issues and setbacks to deal with along the way.  Cheers!
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changegonnacome

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Re: WFC - Wells Fargo
« Reply #1649 on: June 29, 2020, 05:17:11 PM »
The challenges faces WFC now all fall in the ‘doable’ bucket - that’s not to minimize them, it will require focused resolve & perseverance with top notch execution. Think Scharf’s elevation to world class CEO rests on this ‘outsider’ pulling off the turnaround story and I like the setup as a result.