WFC - Wells Fargo

[rb]

Culture smulture.

 

15% in two days for wells fargo is a ridiculous move......interest rates and deregulation is all that matters for wells fargo. 

 

This trump guy lol

I don't think interest rates are going up. I think it's more the Liz Warren factor. I don't know whether they should be this happy but anyway it's one of my largest positions so I'll take the gain. It was pretty oversold anyway.

[StubbleJumper]

Culture smulture.

 

15% in two days for wells fargo is a ridiculous move......interest rates and deregulation is all that matters for wells fargo. 

 

This trump guy lol

 

 

 

 

 

And a new administration that is less likely to make WFC a whipping boy for its own cynical political benefit.

[undervalued]

I am sure you have read it but here it is anyway. http://www.bloomberg.com/news/articles/2016-11-11/buffett-says-stumpf-made-a-hell-of-a-mistake-at-wells-fargo

 

If you want to hear the interview http://money.cnn.com/2016/11/11/investing/warren-buffett-wells-fargo-scandal/

[Grenville]

I am sure you have read it but here it is anyway. http://www.bloomberg.com/news/articles/2016-11-11/buffett-says-stumpf-made-a-hell-of-a-mistake-at-wells-fargo

 

If you want to hear the interview http://money.cnn.com/2016/11/11/investing/warren-buffett-wells-fargo-scandal/

 

Thanks for linking the interview on WFC. I saw the other link on another thread, but it didn't have his WFC comments.

 

Still absorbing, but it's fun to watch him dodge the bank holding regulation of staying passive…

[Jurgis]

I thought Buffett answers were weak. I guess part of it is him trying to convince regulators that he's passive. But part is what people call him hypocrite about. He pretty much says that things he said in the past don't apply here ... well just because ... a lot of wiggling ... he's a passive investor and he doesn't want to sell his stake... (and possibly with a tons of cash he doesn't want to have even more cash without having good ideas where to put it).

 

Personally I don't care much whether he changes his positions (and finds rationalizations why current situation is different than the ones he discussed in the past). However, I have to remember not to take his statements at full value, since he might just shift out of them in the future.

 

Edit: I wonder if it wasn't better for him to continue the silence (and just tell the interviewer that he won't touch the topic because he's passive investor). Also "passive" my ass: he calls Stumpf and he has new CEO come and talk to him... yeah, he says he did not tell them what to do, but still "passive"???

 

Disclosure: I am long BRK and some banks, but not WFC at this moment.

[VersaillesinNY]

I find that Buffett's interview was brilliant and diplomatic.

 

1/ He tries to protect BRK shareholders interests by not selling a great asset.

 

2/ He calls John Stumpf to pass a clear message: 'I don't think you've gotten the gravity of the situation' while remaining silent towards the board of directors; keeping his passive investor’s commitment with regulators.

 

3/ He sticks to his and Munger’s core principles, values and lessons learned:

 

- incentives have terrific power to do good and bad things, but wrong incentives produces perverse behavior to what you intended.

 

- An ounce of prevention is worth a pound of cure.

 

- Get it right, get it fast, get it out, get it over.

 

4/ He remains optimistic on WFC future and leadership; it was classic Buffett.

[Astrea]

Great interview. If you cut out the noise as WB does: there was an incentive; it was flawed; so people did bad things; CEO sucked his thumb. Now there's a new CEO and the incentive is off the table. Has there been a permanent impairment in WFC's intrinsic value? I'm with Warren on this one.

[undervalued]

Although WFC was a big investment for BRK. It's now much smaller compare to his cash built up and his most recent big deal (PCP).

 

And to compare it to most of us, our investment portfolio is much bigger than what we earn right now either through work or business. While BRK can wait out any mistakes for not selling or buying WFC, most of us cannot. I guess most of the people are waiting for his comments to coattail him and by the time he did, most of the discount already disappear.

[Viking]

So Wells Fargo is trading about where it was before the account opening scandal hit the end of Aug (stock is trading about 2% higher today).

 

What has changed in the the US in the last 3 months?

- Trump wins election

- 10  and 30 year bond yields are up about 65 and 75 basis points

- Dec rate hike is 100%

- two rate hikes next year likely

- Elizabeth Warren is out

- Regulatory bodies leadership will shift to more pro bank (from rabid anti bank)

- we have likely seen peak regulation in 2016 from a cost perspective; as these costs fall the bottom line will improve

- Decent chance Dodd Frank gets diluted

- corporate tax rate likely to fall which will increase profits

- capital return likely to get larger

- sentiment in the big banks is improving and will only improve further

- Jeff Gundlach likes financials right now: http://finance.yahoo.com/news/gundlach-says-trump-presidency-bumpy-220927903.html;_ylt=AwrTHRozuyxYfEAAYYVXNyoA;_ylu=X3oDMTEybHZmMnM2BGNvbG8DZ3ExBHBvcwMxBHZ0aWQDQjE4NzlfMQRzZWMDc2M-

 

Is Wells Fargo not a screaming buy right now looking out 24 months? The scandal will be long forgotten by then. They will be earning record profits, capital return will be massive, big banks will be cool again and pe multiple wil be high. Mr Market moves from one extreme emotion to the other. Big banks were hated just a couple of years ago. My guess is they will be loved in a couple of years. There is a $20 bill lying on the street right now for those who want to pick it up....

[BRK7]

So Wells Fargo is trading about where it was before the account opening scandal hit the end of Aug (stock is trading about 2% higher today).

 

What has changed in the the US in the last 3 months?

 

- Elizabeth Warren is out

 

 

I don't disagree with the general thrust of your post, but I am confused by your statement that Elizabeth Warren is out.  How so?

[Viking]

With the Democrats in power Warren was given free reign to hammer on the big banks, which she did frequently. She was constantly harping on the various regulatory bodies to take a harder stance on the big banks (you pick the issue). Reminds me of the line "to some people everything looks like a nail". When it came to big banks Warren hammered every chance she got.

 

There was some talk during the primaries that she was a candidate to be VP. If Clinton had won the White House I have no doubt that Warren would have been given a key post and it would not have been good for the big banks: more regulation, higher capital constraints and lots more negative press.

 

She will still be in Washington but with a lesser role and much reduced power base.

 

The crazy thing is all of the banking regulations put in place since 2010 have made US banks the strongest in the world. As the pendulum swings the other way (less regulation) their profitability will only improve.

 

I just think there are lots of tail winds for the big banks right now. And, yes, it will take years for them to play out so patience will be required.   

[BRK7]

With the Democrats in power Warren was given free reign to hammer on the big banks, which she did frequently. She was constantly harping on the various regulatory bodies to take a harder stance on the big banks (you pick the issue). Reminds me of the line "to some people everything looks like a nail". When it came to big banks Warren hammered every chance she got.

 

There was some talk during the primaries that she was a candidate to be VP. If Clinton had won the White House I have no doubt that Warren would have been given a key post and it would not have been good for the big banks: more regulation, higher capital constraints and lots more negative press.

 

She will still be in Washington but with a lesser role and much reduced power base.

 

The crazy thing is all of the banking regulations put in place since 2010 have made US banks the strongest in the world. As the pendulum swings the other way (less regulation) their profitability will only improve.

 

I just think there are lots of tail winds for the big banks right now. And, yes, it will take years for them to play out so patience will be required. 

 

Thanks for the clarifying reply.  Again, I basically agree with your thesis, but I would add one contrary point:

 

You mention that the US banks are the strongest in the world.  I can't say that for sure, but I would say that US banks do appear to be significantly overcapitalized.  An overcapitalized bank is, all else being equal, a less-risky bank, and therefore a bank deserving of a multiple that reflects this reduced risk.  A less well-capitalized bank may be more profitable in terms of returns on capital, but I would argue that the associated increased risk merits a more modest multiple. 

 

Having said all this, I would expect that the myriad factors you list likely will outweigh the issue I've raised.

[rb]

You guys make some valid points.

 

Personally I'm not sure how enthusiastic I am about bank deregulation. As some pointed it made the banks strong by making them more boring. But it also made the whole system strong. I don't really have a problem with that. Deregulation will make the banks more profitable. But it will make the system weaker. You can say, oh I'll invest in something like Wells which has good risk management. But how long until the happy boys at Citi come up with some brilliant idea of how to use the balance sheet to so x,y,z dangerous things?

 

Moreover, regulation and deregulation are singular events. The gains and losses are front loaded. You loose or gain if you are a shareholder at the point in time when it happens. After that the multiple adjusts and that renders the bank's profitability meaningless. So as someone who owns a lot of WFC stock I'm glad I get a windfall. But after that I am more reluctant rather than enthusiastic about long term ownership.

[onyx1]

So Wells Fargo is trading about where it was before the account opening scandal hit the end of Aug (stock is trading about 2% higher today).

 

What has changed in the the US in the last 3 months?

- Trump wins election

- 10  and 30 year bond yields are up about 65 and 75 basis points

- Dec rate hike is 100%

- two rate hikes next year likely

- Elizabeth Warren is out

- Regulatory bodies leadership will shift to more pro bank (from rabid anti bank)

- we have likely seen peak regulation in 2016 from a cost perspective; as these costs fall the bottom line will improve

- Decent chance Dodd Frank gets diluted

- corporate tax rate likely to fall which will increase profits

- capital return likely to get larger

- sentiment in the big banks is improving and will only improve further

- Jeff Gundlach likes financials right now: http://finance.yahoo.com/news/gundlach-says-trump-presidency-bumpy-220927903.html;_ylt=AwrTHRozuyxYfEAAYYVXNyoA;_ylu=X3oDMTEybHZmMnM2BGNvbG8DZ3ExBHBvcwMxBHZ0aWQDQjE4NzlfMQRzZWMDc2M-

 

Is Wells Fargo not a screaming buy right now looking out 24 months? The scandal will be long forgotten by then. They will be earning record profits, capital return will be massive, big banks will be cool again and pe multiple wil be high. Mr Market moves from one extreme emotion to the other. Big banks were hated just a couple of years ago. My guess is they will be loved in a couple of years. There is a $20 bill lying on the street right now for those who want to pick it up....

 

And, if you are a US taxpayer and hold on to a position with embedded gains, you are likely to enjoy a lower personal capital gains tax rate when you finally sell.

[Viking]

Wells Fargo Treasurer (very well spoken) presented at the Bank of America Financials conference. Great financial overview of the company. The Q&A covered all the current topics. An hour well spent for anyone interested in investing in Wells. https://www.wellsfargo.com/about/investor-relations/events/

 

Lots of banks presenting at this conference... Opportunity to get timely updates on most topics.

[meiroy]

 

 

And, if you are a US taxpayer and hold on to a position with embedded gains, you are likely to enjoy a lower personal capital gains tax rate when you finally sell.

 

Interesting. So, does that mean there will be some selling pressure at the beginning?

[onyx1]

 

And, if you are a US taxpayer and hold on to a position with embedded gains, you are likely to enjoy a lower personal capital gains tax rate when you finally sell.

 

Interesting. So, does that mean there will be some selling pressure at the beginning?

 

In case my post was unclear, I meant that I expect a lower personal capital gains tax rate to be a part of a future tax bill.  Timing unknown, but appears likely in the next year.  If you have a WFC position with embedded gains today, all else equal, it will pay to wait to enjoy the lower rate.

[alpha231616967560]

Wells Fargo Treasurer (very well spoken) presented at the Bank of America Financials conference. Great financial overview of the company. The Q&A covered all the current topics. An hour well spent for anyone interested in investing in Wells. https://www.wellsfargo.com/about/investor-relations/events/

 

Lots of banks presenting at this conference... Opportunity to get timely updates on most topics.

 

Thanks for sharing this - excellent presentation and Q / A. 

[KCLarkin]

WFC is down slightly YTD. The economy, interest rates, inflation, credit markets all look better than Jan 1. WFC would also benefit from any deregulation or tax cuts that Republicans implement.

 

I am really itching to buy more warrants. Am I crazy?

[kab60]

I don't think so. I loaded up on the common mid 40 but consider buying more. I just hate buying after it has run up, but I think that's a mental flaw I should get over.

[KCLarkin]

I don't think so. I loaded up on the common mid 40 but consider buying more. I just hate buying after it has run up, but I think that's a mental flaw I should get over.

 

Update: Bought a bit more. I will turn in my value investor card now.

 

 

 

[chrispy]

I am re-reading the Intelligent Investor and I believe WFC currently satisfies all of Graham's criteria.  It is nearing the <15P/E requirement though.  Not cheap but not astronomical.

 

Must say, I expected the pessimism from the phony accounts to last a little longer...

[rb]

I don't think so. I loaded up on the common mid 40 but consider buying more. I just hate buying after it has run up, but I think that's a mental flaw I should get over.

 

Update: Bought a bit more. I will turn in my value investor card now.

I started buying last year around 53 kept buying down to the mid 40s. I have the same hesitation to buy a stock after a run-up. But I thought it was decently priced at 53 and the only thing that's changed since is the scandal. So I really shouldn't think that it's expensive at 54. Gotta keep things in perspective.

 

Now for the ones that didn't buy it in the 40s, that's called thumb-sucking  ;)

 

[Viking]

The story for the banks just keeps getting better. Bond yields keep motoring higher (10 year is now at 2.45%). Trump picks for the various government jobs are pro-bank. OPEC deal is bullish for oil prices which should result in higher inflation which should lead to further increases in interest rates. The US economy continued to roll along. Consumer confidence numbers are rebounding. For bank investors it kind of feels like a Disney movie.

 

For those who are way overweight bank stocks in their portfolio the question becomes when to lighten up? Personally I find the sell decision the most challenging part of investing. Over the years I have sold lots of positions for decent gains and many have kept going up to nosebleed levels. Trying to be a little more patient on the sell side, especially in situations where the story is getting better at the same time the stock is going up in price. Yes, a good problem to have. :-)

 

The challenge right now is, given all the moving parts, trying to understand what earnings for the big banks will look like in 2017 and 2018. If interest rates stay high I think most current estimates are way low. As analysts start adjusting earnings upwards bank share prices should benefit further.

[RadMan24]

The story for the banks just keeps getting better. Bond yields keep motoring higher (10 year is now at 2.45%). Trump picks for the various government jobs are pro-bank. OPEC deal is bullish for oil prices which should result in higher inflation which should lead to further increases in interest rates. The US economy continued to roll along. Consumer confidence numbers are rebounding. For bank investors it kind of feels like a Disney movie.

 

For those who are way overweight bank stocks in their portfolio the question becomes when to lighten up? Personally I find the sell decision the most challenging part of investing. Over the years I have sold lots of positions for decent gains and many have kept going up to nosebleed levels. Trying to be a little more patient on the sell side, especially in situations where the story is getting better at the same time the stock is going up in price. Yes, a good problem to have. :-)

 

The challenge right now is, given all the moving parts, trying to understand what earnings for the big banks will look like in 2017 and 2018. If interest rates stay high I think most current estimates are way low. As analysts start adjusting earnings upwards bank share prices should benefit further.

 

Well, you have the dividends which are at reasonable levels of payouts. Earnings may fluctuate, but your main concern here is that loans and derivatives don't blow up. In essence, there isn't much else to buy and frankly, banks have been hated on for a long time and now their prospects are beginning to brighten. Why not see how the ride goes, but just ensure you keep aware of any leaks that might blow up down the road, like over exuberance amongst the bankers themselves...my thoughts at least.

 

P.S. Thanks for the heads up on the Q/A Viking