WFC to repay TARP

[dcollon]

It should be interesting to see how they structure this deal

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEDs0s9EBW4s&pos=2

 

[shalab]

8.8% dilution - kind of expected this to happen. Still, not as bad as I expected.

 

 

[KFRCanuk]

8.8% dilution - kind of expected this to happen. Still, not as bad as I expected.

 

Article on the dilution

http://www.examiner.com/x-7944-Warren-Buffett-Examiner~y2009m12d14-Wells-Fargo-TARP-repayment-to-dilute-Berkshire-Hathaway-stake

 

[returnonmycapital]

The repayment should allow for a dividend increase. 

Perhaps up to $1 from the current $0.20 (annualized) in 2010; equivalent to a 4% current dividend yield. 

I see as much as $2 of current dividend paying capacity when provisions normalize.

[bookie71]

The Fed's want the banks to lend more and at the same time they want the TARP repaid, reducing the lendable funds.  Aren't politicians great?

[Kiltacular]

I have to believe this "lend more" is mostly political posturing.

 

If you actually listen to the CEO's of well run banking institutions -- like WFC and USB -- they say that they want to lend more but qualified borrowers aren't borrowing.  Stumpf, from WFC, has literally said his biggest current "worry" is finding new, worthwhile loans to keep his loan book from shrinking.

 

The idea that the Fed's are telling the banks to loan more AFTER we just had a meltdown because of poorly made loans is mind-boggling -- they aren't this stupid...hence, I believe it is political posturing by Obama as his poll numbers continue to implode.  "Fat-cat-bankers" and all that.....

 

Banks make loans...it's their business....this is akin to telling Kraft you want them to sell more cheese or Coke that you want them to sell more soda...it's not like you have to say it twice (or once, for that matter).

 

Assuming this is it for Wells on the dilution front, this hasn't turned out that bad but it hasn't turned out good.  IIRC, Wells had about 3 billion shares outstanding before the Wachovia deal.  They sold some shares to do the deal but the Feds have now required two more capital raises after force-feeding Wells the TARP money in the first place.

 

Wells approximately doubled its size with the acquistion and share count it now up about 65% so the deal should still be accretive once the dust settles..especially so if the proposed $5 billion plus in annualized cost saves comes to fruition and the Wachovia book has been written down accurately. Wells still looks really cheap down here.

[philassor]

kitacular, right on;

 

I have nothing to add. ;)

[ERICOPOLY]

I am very unhappy.  This wound up being a full 10% dilution...

 

Why did they suddenly do this after making "we will repay TARP in a shareholder friendly manner" statements lately?

[Eric50]

Institutional pressure. They don't want to be the last big bank to repay Tarp. Sad...

[Viking]

8 months ago they would have been out of luck trying to raise any equity. My guess is they are doing what they are doing because the market is receptive. And $25 looks OK. What if the US goes into recession again next year... the banks will again be under pressure. I also wonder about Buffetts comments regarding the health of Wells Fargo and their earnings power. If things were so rosy, even after the gov't made reporting losses less painful, why do they need to raise so much money?

 

FFH issued debt and sold stock because the rates were attractive, especially given the current environment. You get this stuff when the market is willing not when you need it.

[ECCO]

Aside from the stock sale, Wells Fargo also is issuing $1.35 billion in stock to employees instead of giving them cash bonuses. The TARP compensation restrictions affected the size of cash salary and bonuses banks could award their executives.

 

$1.35 billion...hey, thats a lot of money!!!  In fact, this represent a bit more than 1% of the company. We are now at 11% dilution.

 

 

ECCO

[prevalou]

considering the purchase of the 38% of Wachovia financial advisors in cash for 4.5 B$, this issue is very logical.

[Guest dealraker]

Considering that if Wells had to settle up today we'd come up about a hundred billion short (assets minus liabilities) the stock sell was a good idea.  Wells is by far the fastest and best runner of the bank group but we are getting away with having far too little so-called equity.  The tier 1 may be listed at 6 percent or so but the reality is that it is a huge negative number.

 

This is the NEW ERA of banking!

[ERICOPOLY]

This is the NEW ERA of banking!

 

I'm not sure if it's a new era, or just a repeat.

 

I believe there was period during the early 1980s where large US banks had worthless South American loans.  Rather than being forced to write them down, they were allowed to earn their way out of the hole before taking the writedown.  They were allowed to hold the loans at original issue value until the day they could afford to write them down, even though everyone knew that was bogus.

 

And somehow America survived!

 

 

 

[Guest Broxburnboy]

The Mad Hedge Fund Trader's take on the new equity issues for the Too Big banks:

 

http://www.madhedgefundtrader.com/December_14__2009.html

 

"feed the ducks when they're quacking"