WFC - Wells Fargo

[Arden]

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?

[wknecht]

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).

 

[wescobrk]

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.

 

[Kiltacular]

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).

 

 

Enjoyed that -- thanks

[fareastwarriors]

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

[Guest neiljgsingh]

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

[giofranchi]

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

 

[Guest qanary]

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.

[redskin]

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?

[Jurgis]

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.

[rpadebet]

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.

[KCLarkin]

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.

 

[Viking]

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.

[Nnejad]

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"

[rpadebet]

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.

 

[bennycx]

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.

[Nnejad]

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."

 

[Guest qanary]

Kovacevich and Dimon were buying their shares today:

 

http://www.cnbc.com/2016/02/11/global-recession-not-coming-to-the-us-kovacevich.html

[Mephistopheles]

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.

[valueorama]

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

 

I guess the pressure to increase non-interest income is so great that Incentive plans pushed people to do all sort of things.

[CorpRaider]

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.

[valueorama]

Calling it phony accounts is sounding very benign. I would say it was outright fraud by the employees.

[OracleofCarolina]

Something is wrong with the system if you fire over 5000 people. What kind of crap is that???

[Kuhndan]

Sounds like a criminal enterprise to me.

[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.