Author Topic: WFC - Wells Fargo  (Read 550031 times)

jay21

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Re: WFC - Wells Fargo
« Reply #60 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?
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fareastwarriors

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Re: WFC - Wells Fargo
« Reply #61 on: December 07, 2012, 09:08:04 AM »
http://finance.yahoo.com/news/wells-fargo-boss-talks-bank-174027047.html

another CEO Q&A

Wells Fargo boss talks bank fees, economy, taxes

mcliu

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Re: WFC - Wells Fargo
« Reply #62 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.

jay21

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Re: WFC - Wells Fargo
« Reply #63 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?
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Junto

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Re: WFC - Wells Fargo
« Reply #64 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.
« Last Edit: December 08, 2012, 06:26:08 AM by Junto »

berkshiremystery

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Re: WFC - Wells Fargo
« Reply #65 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

Parsad

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Re: WFC - Wells Fargo
« Reply #66 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
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racemize

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Re: WFC - Wells Fargo
« Reply #67 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.
« Last Edit: January 11, 2013, 01:57:24 PM by racemize »

Parsad

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Re: WFC - Wells Fargo
« Reply #68 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!
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