WFC - Wells Fargo

[rb]

I don't think i will change your mind, the worst part is i like wells fargo, but i shall not own this stock as long as you are in it.

 

That's pretty amazing that you wouldn't own something that you like just to spite someone else...

+1 That comment is a here's your sign moment lol.

 

In all seriousness the lending side of WFC's is weaker compared to the deposit gathering side. That's not so much WFC's fault as much as an effect of household deleveraging. Actually given the conditions out there WFC loan book has a very good performance. In addition to assume that WFC won't be able to deploy those idle deposits is that the future looks more like the past. In my view it's more likely than not that we see more lending in the future.

 

I've talked previously on the board about my coiled spring theory of US retail banking. Home ownership rate is really low and households are in a much better financial position as they were years ago. At some point you'll have an explosion in lending and WFC will be the primary beneficiary of that. This is not unlike the increase in car sales after the dramatic ageing of US car fleet.

[cmlber]

Forget your NIM, I never talked about NIM. 

 

If you don't believe me check the last few years of earnings - deposits exploded but their net interest income has not moved much. 

 

You never talked about NIM?  You made a conclusion that since deposits exploded in the last few years while net interest income didn't, that this must hold true in the future (unless rates rise) without realizing that interest rates fell significantly in the recent past.  That's why I brought up NIM.  If you don't think interest rates will be falling in the future, then what happened to net interest income in the recent past is irrelevant, what matters is what happens in the future.

 

This is your quote from earlier in the thread.

 

"Let's say they need to retain 10% of deposits as equity consistent with their tier 1 target."

 

More prong.  Tier 1 capital counts common + retained earnings not deposits. 

 

I apologize for less than perfect sentence structure.  Obviously they can't "retain" deposits.  If they could "retain" deposits, what's the alternative?  Distribute them out (all $1.25 trillion of them)?  Damn that would be one hell of a bargain.  Clearly what I meant was "Let's say they need to retain as equity an amount of earnings equal to approximately 10% of the growth in deposits in any given year to maintain a 10% tier 1 leverage ratio."  Is that better for you?

 

The worst part is i like wells fargo, but i shall not own this stock as long as you are in it.

 

Very mature. 

[Picasso]

Everyone keeps talking about rates going up as a catalyst, but the shape of the yield curve is much more important.  The ECB tried raising rates in 2011 but things didn't go too well.  There's this whole "when rates go up, banks will do well" meme that doesn't seem to hold much water.  Wouldn't shock me if short-term rates went up and the rest of the curve basically stayed where it's at.

[Spekulatius]

Everyone keeps talking about rates going up as a catalyst, but the shape of the yield curve is much more important.  The ECB tried raising rates in 2011 but things didn't go too well.  There's this whole "when rates go up, banks will do well" meme that doesn't seem to hold much water.  Wouldn't shock me if short-term rates went up and the rest of the curve basically stayed where it's at.

 

There is also the chance that higher rates will reduce low growth and that some creditors get into trouble and loan provisions need to be made at a normalized rate.

The tide (of falling interest rates) has been rising for a long time, so I am pretty sure that if the tides recedes, there are quite a few folks who find themselves without a bathing suit.

 

Picasso is correct that the steepness of the interest rate curve is more important than absolute rates. The steepness of the curve has flattened over time (with lower interest rates) and that has hurt banks NIM, but it is not necessarily a given that the steepness increases when nominal short term interest rates rise again.

[Libs]

https://www.thestreet.com/story/13841660/1/you-think-wells-fargo-s-bankers-are-bad-take-a-look-at-its-brokers.html?puc=yahoo&cm_ven=YAHOO&yptr=yahoo

 

More dirt on their branch FA's. My impression of these people is they were under tons of pressure to produce, and churned people through a lot of commission-based products.

 

[cubsfan]

Insightful interview on GF re: Wells ---

 

http://www.gurufocus.com/news/447656/gurufocus-podcast-episode-2-wells-fargo-scandal--investors-with-bill-smead

 

I added more.

[oddballstocks]

Re: reputation damage

 

I was on another site and there was a news article about how the CEO of a classified ad type site was being tried for prostitution because prostitutes advertised on the site and his company allowed it to happen.

 

The first comment was in essence "how is this guy being tried when nothing happens to the CEO of Wells Fargo when his employees commit fraud?"  There were dozens of comments following.  The site is similar to this, but for software developers, so this isn't the comment-first-think-later crowd on some news site.  It's a very intelligent set of people.

 

There's a danger in this.  If the 'common man' sees that banks can do anything they want regardless of the status of the law and nothing happens, they keep their jobs and keep their bonuses it'll breed outrage and eventually that's going to create a backlash.

 

Not to derail this thread, but it reminds me of a very rich guy I sat next to at a happy hour at an exclusive club in town here.  After a few drinks he started to discuss income inequality and his concern for it.  He was apparently so concerned that he went back and studied historic income inequality and what the tipping point was.  He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.  He kept going on about how he was worried about his safety and how these hoards of poor people might come after him with pitchforks.  He was talking about how he felt like his luxury car made him a target and how he felt people looked a him differently because he was wealthy.  He wasn't concerned at the society level, but that about himself, and how his wealth could have negative consequences.

 

When I think about Wells the story seems the same.  If Wells or other big banks can continue to do whatever they like at some point there will be pitchforks.  This wealthy guy was concerned about literal pitchforks.  Maybe something like that happens, or maybe the pitchfork bearing person is someone in Congress, or a regulator, although I doubt a regulator.  Regardless things that can't go on forever won't.  And if you have a business that looks at customers as something to be milked, or at least taken advantage of then I can't imagine that business growing and thriving. 

 

But maybe I'm wrong in all of this.  My main thesis is that we live in a culture that disapproves of something like this.  But reading the comments I think that's incorrect.  It seems people don't actually care.  And maybe we're in an environment where killing your grandma to get ahead is rewarded because the end justifies the means.  But then again I am a right/wrong type person and maybe I'm just biased by my own view.

[Jurgis]

oddball,

 

I don't think we are at the pitchforks point in re: banks.

 

I also don't think we are at the pitchforks point re: income inequality, but IMO we are at a point where we should start do things so we don't get to the pitchfork point. At pitchfork point, it is too late to do something. But this is OT on this thread.

 

I think there is recency bias re: WFC. Or like Kahneman says WYSIATI (what you see is all there is).

So in one sense, this might be a buy point where people expect it only get worse for WFC - but it won't.

OTOH, there is no guarantee that it won't. There is the reflexivity part of WYSIATI, where WYSIATI causes more investigations, more lawsuits, more fines, etc. So it could get worse.

 

In some sense, both sides are right (in some possible future world). In terms of investing in WFC, people just have to decide on possibilities and probabilities of the different future scenarios.

[rb]

Oddball,

 

I think you've hit the nail on the head on the income inequality stuff. In my opinion it is the biggest and most significant economic problem we have today. I see aggregate demand has been week for at least a decade and a half because of growing income inequality. Basically the money accrues to the people that won't spend it and the ones who want to spend have no money to spend.

 

Regarding the pitchforks, I don't think we'll see them because we have elections and I don't know if you've noticed but the revolution is happening right now. Bernie Sanders and Donald Trump exist because people are pissed off and they want to rebel. The reason for that is income inequality. There's all this talk about trade being evil, but that's nonsense. If you look at the GDP number (the country's income) the US has done quite well. True it's been a bit slower since the 08 crash. But in reality it did much better than expected given the magnitude of that crisis. So the country overall has no problem earning money. So why are people poor and dissected? Because of how that income is distributed. Because of income inequality.

 

Now it's easy to make up a story about trade that sounds simple: Mexicans and Chinese are taking your money. Then come up with some solutions that sound simple: scrap NAFTA, institute tariffs. It's easy to sell that. It's not easy to sell the reality. Well you see you are not doing well because of income inequality which is caused by a set of forces - some simpler and some really complicated, some of which you were strongly in favor of. And the solutions for that is a set of complicated policies, some of which you will disagree with ideologically but which are necessary. I don't know how you sell that and win an election.

 

However I think we may be on the right path of slowly improving. Politicians aren't stupid and they see what's going on. Stumpf took a bipartisan lashing in congress that you wouldn't have expected 10 or 20 years ago. I think both sides know they'll be out of a job if they don't move on income inequality and they will make progress.

 

All that being said, is WFC the straw that breaks the camel's back? Will someone drop a sack of bricks on their head? I have no way of knowing for sure but I don't think so. I think they made a tactical error and misunderstood the magnitude of what they did and thus created a bigger problem. But I think they get it now, if for no other reason than that uncle Warren explained it to them and I think they will move quickly to solve it and put it behind them. Yes it will cost a chunk of money, but at their size it's still a speeding ticket. They just made it a 40 over ticket out of a 20 over ticket cause they argued with the cop.

[Spekulatius]

oddball,

 

I don't think we are at the pitchforks point in re: banks.

 

I also don't think we are at the pitchforks point re: income inequality, but IMO we are at a point where we should start do things so we don't get to the pitchfork point. At pitchfork point, it is too late to do something. But this is OT on this thread.

 

I think there is recency bias re: WFC. Or like Kahneman says WYSIATI (what you see is all there is).

So in one sense, this might be a buy point where people expect it only get worse for WFC - but it won't.

OTOH, there is no guarantee that it won't. There is the reflexivity part of WYSIATI, where WYSIATI causes more investigations, more lawsuits, more fines, etc. So it could get worse.

 

In some sense, both sides are right (in some possible future world). In terms of investing in WFC, people just have to decide on possibilities and probabilities of the different future scenarios.

 

People won't do the pitchfork in the US (this would be different in France, where they have a history for revolutions and would do it), but they might elect somebody who does the work with the pitchfork for them. If you have a large percentage of people who have little to lose from their POV and don't give a damn, a lot of bad things can happen.

[RichardGibbons]

He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.

 

This is interesting to me, because never before have we had such a powerful propaganda machine as we do now. There's an entire TV network dedicated to promoting the message that anyone can succeed if they just work hard enough, when really, America has horrible income mobility. People truly believe in the American dream, when really, if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.  (It probably is one of the best countries to live in if you don't just want to get rich, but make billions.)

 

So I'm curious whether this propaganda can succeed over the long term and eventually create a Brave New World dystopia, or if something upsets that trend.

 

I think RB's totally nailed it with Sanders and Trump being two of the first manifestations of this dissatisfaction over income inequality.

 

 

[fareastwarriors]

He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.

 

This is interesting to me, because never before have we had such a powerful propaganda machine as we do now. There's an entire TV network dedicated to promoting the message that anyone can succeed if they just work hard enough, when really, America has horrible income mobility. People truly believe in the American dream, when really, if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.  (It probably is one of the best countries to live in if you don't just want to get rich, but make billions.)

 

So I'm curious whether this propaganda can succeed over the long term and eventually create a Brave New World dystopia, or if something upsets that trend.

 

I think RB's totally nailed it with Sanders and Trump being two of the first manifestations of this dissatisfaction over income inequality.

 

I'm living the Dream baby. 

 

[rb]

Honestly, I don't think that our propaganda is much better than in was at other times of income inequality, say 1848 or gilded age. Surely, it is more high tech and seems more rapid response-y. But in the past we had really good propaganda as well and really not much as changed. For example, after the 08 crisis I developed this quirk of looking back at the great depression press, and the articles in 2011 or so were virtually identical to the ones circa 1932. If i gave you one to read you wouldn't be able to accurately tell which era it was written in.

 

It's one of those things where the more things change the more they stay the same. The delivery method may be different but the end result is the same. The ones telling themselves that they'll be able to get by cause they have better propaganda so this time will be different are kidding themselves and will be sadly disappointed. That being said, i think society and business will be fine in the end even though we may go through a bumpy adjustment period, a more prosperous era lies ahead.

[RichardGibbons]

Yeah, that's plausible too, RB.  You do have the mass media and other technology, but there are balancing factors too, like people being more cynical of advertising and politicians in general. And, while the wealthy control much of the media, the internet is far less controlled.

 

My big fear is the combination of facial recognition technology, ubiquitous cameras, and fear of terrorists eventually leads to a 1984-like outcome.  With these hidden courts, searches without warrants, state-sanctioned torture, and killings of Americans by the state without a trial, things keep ratcheting up in that direction.  Things rarely seem to move toward liberty and transparency in government.

[Jurgis]

if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.

 

Depends of what kind of poor.

 

Uneducated few-or-no-qualifications/skills poor - America is pretty bad.

 

Educated skilled immigrant poor - America is one of the best. I know a bunch of people in this category who started from zero and are doing good to great.

[LR1400]

He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.

 

This is interesting to me, because never before have we had such a powerful propaganda machine as we do now. There's an entire TV network dedicated to promoting the message that anyone can succeed if they just work hard enough, when really, America has horrible income mobility. People truly believe in the American dream, when really, if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.  (It probably is one of the best countries to live in if you don't just want to get rich, but make billions.)

 

So I'm curious whether this propaganda can succeed over the long term and eventually create a Brave New World dystopia, or if something upsets that trend.

 

I think RB's totally nailed it with Sanders and Trump being two of the first manifestations of this dissatisfaction over income inequality.

 

Seriously?

 

The small town I live in (less than 30,000 people) is full of multimillionaire individuals who started in the poor-middle class range. Your comments are ridiculous. I personally know someone who went from salad position at his wife's family company to owning it and building it up to a personal net worth of over $100 million. I know another person who has had two bankrupt companies and who will be worth $10 million in a few years at around 60 years old, from very basic real estate investing.

 

It takes a lot of hardwor, drive, and some luck. But it is very achievable. I've noticed the ones who don't really get there in the US, at least in my area, are whiners who don't want to take any personal risks, don't  nat to really educate themselves, and don't want to work their ass off.

 

Some people just don't have the balls to be entrepreneurs and that's ok, but the US is a place where an entrepreneur can work their ass off and make a few smart moves and be worth multiple millions. This is for male, female, black, white, Latino, etc.

[LR1400]

if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.

 

Depends of what kind of poor.

 

Uneducated few-or-no-qualifications/skills poor - America is pretty bad.

 

Educated skilled immigrant poor - America is one of the best. I know a bunch of people in this category who started from zero and are doing good to great.

 

Yes!

 

Hell, I had an uber ride from a man who was worth more than I will probably ever be worth. Cool guy, great story. Just pure inspiration. First generation American. He's what the USA is all about.

[rb]

Yeah, that's plausible too, RB.  You do have the mass media and other technology, but there are balancing factors too, like people being more cynical of advertising and politicians in general. And, while the wealthy control much of the media, the internet is far less controlled.

 

My big fear is the combination of facial recognition technology, ubiquitous cameras, and fear of terrorists eventually leads to a 1984-like outcome.  With these hidden courts, searches without warrants, state-sanctioned torture, and killings of Americans by the state without a trial, things keep ratcheting up in that direction.  Things rarely seem to move toward liberty and transparency in government.

I don't think technology matters. It may be a temporary fix. You can't keep the masses down when they're pissed off with force or technology. They'll rise up and shove you're technology up you're ass. My family is from the Eastern Block. The grip of the security services in the 70s and 80s and their surveillance capabilities would make the NSA blush. Didn't help them one bit in the end. So while the idea of a 1984 world is scary I don't think it'll come to pass.

 

I'm actually quite optimistic about this. I think it'll work itself out. That's why I like democracy and capitalism it's full of opportunists. Trump is an opportunist. He stumbled into this situation. Maybe knowingly, maybe by dumb luck, doesn't matter. But he stumbled into it early. The pols that were against him were thinking that it's business as usual and were wrong. The people don't really know that income inequality is why they're pissed off.

 

So maybe we came close to an iffy situation with Trump. Maybe we missed it cause he likes tits and ass a little too much. So the pols missed whats going on. But the pols (well some of them) are not stupid, and they're paying attention, and they're all opportunists. There will be some to step up to diffuse this. Most people thin that they're beholden to money and special interests. I think that's wrong. They don't give a flyer about money. They're beholden to power and they'll take the opportunity to preserve their power. Free market at work.

 

Economically I think this will translate into lower margins. But that will be mitigated by higher growth and volumes. From a valuation perspective it'll be a bit of a meh.

[rb]

Seriously?

 

The small town I live in (less than 30,000 people) is full of multimillionaire individuals who started in the poor-middle class range. Your comments are ridiculous. I personally know someone who went from salad position at his wife's family company to owning it and building it up to a personal net worth of over $100 million. I know another person who has had two bankrupt companies and who will be worth $10 million in a few years at around 60 years old, from very basic real estate investing.

 

It takes a lot of hardwor, drive, and some luck. But it is very achievable. I've noticed the ones who don't really get there in the US, at least in my area, are whiners who don't want to take any personal risks, don't  nat to really educate themselves, and don't want to work their ass off.

 

Some people just don't have the balls to be entrepreneurs and that's ok, but the US is a place where an entrepreneur can work their ass off and make a few smart moves and be worth multiple millions. This is for male, female, black, white, Latino, etc.

You know, your personal anecdotes, or uber rides, there are actually reliable statistics that track income mobility and the US doesn't rank that well. You can check them out.

 

Furthermore, the vast majority of the populace don't want to be multimillionaires, and entrepreneurs, and take personal risks. Quite the opposite. They want to go to work, earn an income, come home and spend time with their families, watch TV, and take no personal risks. They also have have a lot of power. There's strength in numbers and they also vote.

 

It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

[LR1400]

Seriously?

 

The small town I live in (less than 30,000 people) is full of multimillionaire individuals who started in the poor-middle class range. Your comments are ridiculous. I personally know someone who went from salad position at his wife's family company to owning it and building it up to a personal net worth of over $100 million. I know another person who has had two bankrupt companies and who will be worth $10 million in a few years at around 60 years old, from very basic real estate investing.

 

It takes a lot of hardwor, drive, and some luck. But it is very achievable. I've noticed the ones who don't really get there in the US, at least in my area, are whiners who don't want to take any personal risks, don't  nat to really educate themselves, and don't want to work their ass off.

 

Some people just don't have the balls to be entrepreneurs and that's ok, but the US is a place where an entrepreneur can work their ass off and make a few smart moves and be worth multiple millions. This is for male, female, black, white, Latino, etc.

You know, your personal anecdotes, or uber rides, there are actually reliable statistics that track income mobility and the US doesn't rank that well. You can check them out.

 

Furthermore, the vast majority of the populace don't want to be multimillionaires, and entrepreneurs, and take personal risks. Quite the opposite. They want to go to work, earn an income, come home and spend time with their families, watch TV, and take no personal risks. They also have have a lot of power. There's strength in numbers and they also vote.

 

It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

 

Quire frankly, if you don't want to take the personal risk, you don't deserve the level of income or reward of those who will and do. That's meritocracy at its best. If

[rb]

Quire frankly, if you don't want to take the personal risk, you don't deserve the level of income or reward of those who will and do. That's meritocracy at its best. If

I absolutely agree. The people that take personal risks, become entrepreneurs, have higher education, etc. deserve higher levels of income. What we're going through right now is a debate of how big the gap should be.

[RichardGibbons]

Seriously?

 

The small town I live in (less than 30,000 people) is full of multimillionaire individuals who started in the poor-middle class range. Your comments are ridiculous. I personally know someone who went from salad position at his wife's family company to owning it and building it up to a personal net worth of over $100 million. I know another person who has had two bankrupt companies and who will be worth $10 million in a few years at around 60 years old, from very basic real estate investing.

 

Cool you know these people.  These anecdotes are irrelevant to an argument that's actually based on statistics, but they are fun to talk about.  Here's some statistics  to broaden your understanding.

 

http://www.epi.org/publication/usa-lags-peer-countries-mobility/

 

I agree that people who work hard and take risks are more likely to get ahead.  It would be interesting to know whether risk-takers are also more likely to fall behind (like, they're choosing riskier paths, so I'd guess you'd end up with a higher mean, but higher variance.)  I imagine it would be impossible to find stats on this one.

 

I found this blog by Howey explains one of the big problems with income inequality nicely.

 

http://www.hughhowey.com/the-greatest-threat/

 

The key point for me is, "People are willing to harm themselves a little in order to spite someone who is being unfair."

 

OK, I'm going to stop the political discussions on this thread, because there's enough of that elsewhere.

 

Richard

 

 

 

[Jurgis]

http://www.epi.org/publication/usa-lags-peer-countries-mobility/

 

Ah, this talks about intergenerational mobility. So it does not capture immigrant earnings mobility. Makes sense and matches what I said.

[ScottHall]

Quire frankly, if you don't want to take the personal risk, you don't deserve the level of income or reward of those who will and do. That's meritocracy at its best. If

I absolutely agree. The people that take personal risks, become entrepreneurs, have higher education, etc. deserve higher levels of income. What we're going through right now is a debate of how big the gap should be.

 

No one deserves shit and that type of thinking will get you killed.

[flesh]

From what I've seen there is some but significantly less income inequality than most people seem to understand. On a forum like this I would expect people to adjust the inequality for wealth transfers in the form of changes in taxes/eitc for lower and middle income groups as well as food stamps, disability, medicare/medicaid etc. Once you adjust for all the economic factors that effect one's quality of life or income/wealth it looks a bit different?

 

http://www.aei.org/publication/adjusting-transfers-federal-taxes-reduces-income-inequality-50/

 

http://www.pewresearch.org/fact-tank/2015/09/22/the-many-ways-to-measure-economic-inequality/

 

That said, as we become more productive and technology becomes a greater % of the economy, the money should  continue to flow upward and this is where WEB talks about utilizing the EITC.

 

Personally, if makes more sense to me to slowly supplement people's incomes through a mechanism like the EITC while keeping the min wage low. This way we are competitive with trade as labor costs are low, we have lower local prices, more jobs, and all the other ancillary benefits of low wages. Importantly, those who are working will benefit from this and not those who are not.  Over time as the money flows up, assuming those folks are paying a higher tax rate (40%), the incremental tax revenues may cover a good portion of a growing EITC or something like it.

 

Eventually, with AI and robots, it becomes clear that there will have to be growing entitlements as workers get displaced. It's silly to speed up the process by raising min wages and/or artificially slowing innovation by increasing taxes for something like a basic wage at this point. Again, supplement those who are willing to work with something like the EITC.

 

Hopefully in our lifetimes we end up in a star trek like society, this will be accomplished by over-weighting productivity/innovation gains, not socialism. If my kids could spend there lives studying something sciencey vs. scrambling to make a buck, that would be great.