WFC - Wells Fargo

[John Hjorth]

Thanks for putting some more colour on it here, rb,

 

I haven't finished studying the Q1 material yet. And I actually forgot about the FED order not to expand business volume. Is WFC out of that order now, by the way?

 

 

 

 

[rb]

No, they're still in the order. I get the feeling that they think they're gonna be out in a couple of quarters but I think no one can really know. They said that they're gonna keep pulling back on financial institutions deposits in order to protect/grow the core business while complying with the order. They said that the whole business of FI deposits is about 300 million of income a year.

[dutchman]

guys, will this fine that's being negotiated remove the restrictions on growing assets? 

 

[Spekulatius]

Medicocre quarter at best. I see one time gains tax of $1.6B, partly offset by $0.67B in litigation costs. This does not look cheap, considering that WFC likely will tread water for years. I think they will have to invest more in their online platforms for both brokerage and banking. Both look really stale and are clumsy to operate.

[mjs111]

guys, will this fine that's being negotiated remove the restrictions on growing assets?

 

 

No, not necessarily.  The fine that's being negotiated is to settle all matters being investigated by the OCC and the CFPB.  The asset cap was put in place by the Federal Reserve.  I say not necessarily since I assume if the OCC and CFPB walk away satisfied it will carry some weight, but the asset cap decision rests with the Federal Reserve, not the OCC and CFPB.

 

Mike

[Viking]

My challenge with Wells Fargo is understanding where they are in their transformation and managing their issues. The sense I have is they are in the mid innings (not late innings). I also wonder if all the skeletons are out of the closet or if more issues will surface. Their revenue is not growing while expenses are. On the call the CEO tried to address the question “rumour has it all of your good people are leaving”. Not good. My read is it will be 2020 before they have put their issues behind them (if nothing new comes along).

 

And then you look at the other big US banks. All are growing revenue and managing costs (costs growing less than revenue driving operating leverage). They are all driving their strategy and investing in the future. Earnings per share will be up significantly this year (25 to 35% depending on the bank) and next year (15-20% depending on the bank). And these other banks are currently trading at cheap valuations. Why hold WFC when you can hold another large US bank and make solid, pretty predictable returns?

 

I bought WFC early last year thinking the worst was behind it. Fortunately, I held my WFC shares for only a few weeks before deciding to flip into C (and then to BAC later in the summer). I expect the other big US banks to continue to outperform WFC over the next 12 months.

[John Hjorth]

Thank you for sharing, gents,

 

I feel like I'm hit by a cub over my head - the negative way. Mr. Sloan isen't up to his job, by cleaning up this mess effectively, ref. my post #674 in this topic.

 

I'm out monday.

[shalab]

My family is a wellsfargo customer and shareholders. The branch service is excellent. The technology platform is adequate.

 

I am not impressed with the CEO but WEB says he is working hard. He may be replaced like the Citi CEOs.

 

That said, I think Wells is a good investment. 6% returns are guaranteed - 3% from dividend yield and 3% from share buy-backs. Both these are better than JPM. I think it will be in the 10-15% range for the next few years.

 

I liked Q1 report - especially that the underwriting standards are being tightened. It is a good sign. WFC and USB are the best run large banks in the USA. They should get out of the no-growth situation by end of the year.

 

My challenge with Wells Fargo is understanding where they are in their transformation and managing their issues. The sense I have is they are in the mid innings (not late innings). I also wonder if all the skeletons are out of the closet or if more issues will surface. Their revenue is not growing while expenses are. On the call the CEO tried to address the question “rumour has it all of your good people are leaving”. Not good. My read is it will be 2020 before they have put their issues behind them (if nothing new comes along).

 

And then you look at the other big US banks. All are growing revenue and managing costs (costs growing less than revenue driving operating leverage). They are all driving their strategy and investing in the future. Earnings per share will be up significantly this year (25 to 35% depending on the bank) and next year (15-20% depending on the bank). And these other banks are currently trading at cheap valuations. Why hold WFC when you can hold another large US bank and make solid, pretty predictable returns?

 

I bought WFC early last year thinking the worst was behind it. Fortunately, I held my WFC shares for only a few weeks before deciding to flip into C (and then to BAC later in the summer). I expect the other big US banks to continue to outperform WFC over the next 12 months.

[racemize]

That said, I think Wells is a good investment. 6% returns are guaranteed - 3% from dividend yield and 3% from share buy-backs. Both these are better than JPM. I think it will be in the 10-15% range for the next few years.

 

I see the div yield difference of 3% for WFC vs 2% for JPM.  I'm not getting the share buyback difference though?

 

WFC authorized $11.5 billion for 2017 CCAR, which is a yield of 4.6% off of closing price;

JPM authorized $19.4 billion for 2017 CCAR, which is a yield of 5.2% off of closing price.

 

I imagine JPM will have a better 2018 CCAR and increase capital return more than WFC given the exceptional performance by JPM and the lower earnings growth/regulatory overhang of WFC.

 

Both trade at the same earnings multiple.

 

 

Or, perhaps consider Citi, who trades at a lower multiple than WFC, has more room to improve, but less overhang. 

 

Div yield is 1.8% (much lower, but by 1.2%);

Share repurchase of $15.6 billion for a yield of 8.6%, and these repurchases will probably be more effective than WFC or JPM, given the lower price to TBV (assuming they get profitability to a decent level at some point (maybe 2020).

 

 

 

I also think WFC tends to issue more shares, so the net buyback isn't as good.  JPM share count consistently dropped over the last few years; WFC is not as consistent.  I didn't run the check like I did with JPM/C/BAC though, so this is off recall.  Please correct if I'm off here.

[shalab]

I did YoY calculations for JPM and WFC. JPM was low 2% in buy backs where as WFC was high 2% (~2.77% I think). In addition - these are the numbers for WFC and JPM.

 

Last 5 year earning growth: 21% for WFC, 10.5% JPM

Last 5 year book value growth: 10% for WFC, 7% for JPM

 

When WEB said his best ideas are in berkshire, he wasn't joking - as with the Korean stocks (where he made 500 mm for Berkshire through Samsung).

 

I too don't like stock issuance by WFC but one of the advantages of low stock price is that many of the RSUs will expire worthless. This increases bang for the buck of share re-purchases.

 

That said, I think Wells is a good investment. 6% returns are guaranteed - 3% from dividend yield and 3% from share buy-backs. Both these are better than JPM. I think it will be in the 10-15% range for the next few years.

 

I see the div yield difference of 3% for WFC vs 2% for JPM.  I'm not getting the share buyback difference though?

 

WFC authorized $11.5 billion for 2017 CCAR, which is a yield of 4.6% off of closing price;

JPM authorized $19.4 billion for 2017 CCAR, which is a yield of 5.2% off of closing price.

 

I imagine JPM will have a better 2018 CCAR and increase capital return more than WFC given the exceptional performance by JPM and the lower earnings growth/regulatory overhang of WFC.

 

Both trade at the same earnings multiple.

 

 

Or, perhaps consider Citi, who trades at a lower multiple than WFC, has more room to improve, but less overhang. 

 

Div yield is 1.8% (much lower, but by 1.2%);

Share repurchase of $15.6 billion for a yield of 8.6%, and these repurchases will probably be more effective than WFC or JPM, given the lower price to TBV (assuming they get profitability to a decent level at some point (maybe 2020).

 

 

 

I also think WFC tends to issue more shares, so the net buyback isn't as good.  JPM share count consistently dropped over the last few years; WFC is not as consistent.  I didn't run the check like I did with JPM/C/BAC though, so this is off recall.  Please correct if I'm off here.

[racemize]

I did YoY calculations for JPM and WFC. JPM was low 2% in buy backs where as WFC was high 2% (~2.77% I think). In addition - these are the numbers for WFC and JPM.

 

Last 5 year earning growth: 21% for WFC, 10.5% JPM

Last 5 year book value growth: 10% for WFC, 7% for JPM

 

When WEB said his best ideas are in berkshire, he wasn't joking - as with the Korean stocks (where he made 500 mm for Berkshire through Samsung).

 

I too don't like stock issuance by WFC but one of the advantages of low stock price is that many of the RSUs will expire worthless. This increases bang for the buck of share re-purchases.

 

 

I suspect CCAR is a bit better for estimating what will happen rather than what has, but even looking back, I'm not sure how well WFC does vs JPM on net share buybacks.  Primarily using valueline for historical values below:

 

YoY change 2016-2017:

WFC: 4891.6/5016.1 = -2.5%

JPM: 3425.3/3561.2 = -3.8%

 

Change since 2010:

WFC: 4891.6/5226.8 = -6.4%

JPM: 3425.3/3910.3 = -8.8%

 

On earnings, 2017 had a pretty big charge for JPM in Q4, and the tax change is pretty big, so here's earnings growth from 2010 to Annualized 2018Q1:

WFC: 1.12*4/2.21 = 102.7% -> 9.2% CAGR

JPM: 2.37*4/3.96 = 139% -> 11.5% CAGR

 

 

EDIT: I'm assuming you are also using valueline for those 5 year earnings growth numbers.  I'm really confused how they have WFC at 5 year annual growth of 21%--earnings 5 years ago were $3.89, in 2017 they were 4.10, which is 5% cumulative growth and nowhere close to 20% annual.

[shalab]

Yes, I looked at valueline. The growth from 2018-2020 looks identical for these two.

 

I did YoY calculations for JPM and WFC. JPM was low 2% in buy backs where as WFC was high 2% (~2.77% I think). In addition - these are the numbers for WFC and JPM.

 

Last 5 year earning growth: 21% for WFC, 10.5% JPM

Last 5 year book value growth: 10% for WFC, 7% for JPM

 

When WEB said his best ideas are in berkshire, he wasn't joking - as with the Korean stocks (where he made 500 mm for Berkshire through Samsung).

 

I too don't like stock issuance by WFC but one of the advantages of low stock price is that many of the RSUs will expire worthless. This increases bang for the buck of share re-purchases.

 

 

I suspect CCAR is a bit better for estimating what will happen rather than what has, but even looking back, I'm not sure how well WFC does vs JPM on net share buybacks.  Primarily using valueline for historical values below:

 

YoY change 2016-2017:

WFC: 4891.6/5016.1 = -2.5%

JPM: 3425.3/3561.2 = -3.8%

 

Change since 2010:

WFC: 4891.6/5226.8 = -6.4%

JPM: 3425.3/3910.3 = -8.8%

 

On earnings, 2017 had a pretty big charge for JPM in Q4, and the tax change is pretty big, so here's earnings growth from 2010 to Annualized 2018Q1:

WFC: 1.12*4/2.21 = 102.7% -> 9.2% CAGR

JPM: 2.37*4/3.96 = 139% -> 11.5% CAGR

 

 

EDIT: I'm assuming you are also using valueline for those 5 year earnings growth numbers.  I'm really confused how they have WFC at 5 year annual growth of 21%--earnings 5 years ago were $3.89, in 2017 they were 4.10, which is 5% cumulative growth and nowhere close to 20% annual.

[AzCactus]

Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it. 

[nkp007]

Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.

 

It is worth it.

[walkie518]

Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.

 

It is worth it.

 

Management will have to turn every stone and find every flaw before moving forward...

 

[AzCactus]

Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.

 

It is worth it.

 

Not if you get an STD and that's what this specific lady has lol

[Spekulatius]

Wells Fargo in the news again for acting improper.  This is getting pretty ridiculous---no way a sane person would do business with these guys. 

 

This is like dating the good looking girl who has temperamental issues but saying the sex is worth it.

 

It is worth it.

 

 

LOL. Agreed. LT relationships are a different matter.

[John Hjorth]

Posted by Spekulatius in the C topic, edited by me on purpose to direct the quoting to the WFC DFAST 2018 results:

 

... I am not even sure that WFC is thr best deal amongst the banks right now. I do think they did decently in the stress test. ...

 

The DFAST 2018 for WFC was actually what I was most curious about under my reading of FED DFAST 2018 report yesterday. Personally, I think WFC passed the stress test in fine style.

 

Somehow a bit odd, considering how hard FED has come down on WFC recently with that order not to expand business volume for WFC. I'm speculating here, that FED has been on a mission to get WFC to get its act together. If that is true, based on the stress test result for WFC, the order now seems like some kind of overreaction.

[Rasputin]

IMO, the fed view the consent order and ccar separately (2 different buckets).  There are many risks to a bank: capital risk, credit risk, liquidity risk, market risk, operational risk.  The consent order relates to operational risk, while ccar relates to capital risk, credit risk, market risk. 

[Spekulatius]

Posted by Spekulatius in the C topic, edited by me on purpose to direct the quoting to the WFC DFAST 2018 results:

 

... I am not even sure that WFC is thr best deal amongst the banks right now. I do think they did decently in the stress test. ...

 

The DFAST 2018 for WFC was actually what I was most curious about under my reading of FED DFAST 2018 report yesterday. Personally, I think WFC passed the stress test in fine style.

 

Somehow a bit odd, considering how hard FED has come down on WFC recently with that order not to expand business volume for WFC. I'm speculating here, that FED has been on a mission to get WFC to get its act together. If that is true, based on the stress test result for WFC, the order now seems like some kind of overreaction.

 

I agree that WFC does did well, as did the Subs of the European banks by the way. I found it surprising how much of a hit the investman banks took (G, MS, even JPM and CS to some extend) and then STT, which I don’t understand at all. MS appears to be very much in risk on mode.

[sleepydragon]

In the most recent presentation by WFC’s ceo, they are aiming reaching roe of 15% in a few years, through returning capitals and cutting expenses. If they are successful at it, the stock is definitely undervalued, imo.

 

[Viking]

WFC is the big winner of this years CCAR sweepsteaks. While under the Fed’s microscope they were able to deliver what looks to me to be the largest total payout (if I am understanding things properly. Not being allowed to grow their balance sheet may have helped them get approval to return more capital. Dividend of $0.43 = yield of 3.1% (on share price of $55).

 

“the Company expects that it will, subject to approval by the Company’s Board of Directors, increase its third quarter 2018 common stock dividend to $0.43 per share from $0.39 per share. The plan also includes higher levels of common stock repurchases1 – up to $24.5 billion for the four-quarter period (third quarter 2018 through second quarter 2019), compared with Wells Fargo’s 2017 Capital Plan, which covers the third quarter of 2017 through the second quarter of 2018 and includes up to $11.5 billion of common stock repurchases1, of which $8.5 billion of common stock has been repurchased1, 2 through the first quarter of 2018. In addition, the Company may consider redemptions or repurchases of other capital securities as part of the plan.”

[sleepydragon]

$$$$ 8)

[John Hjorth]

For those further interested in the discrete tax hit that WFC was subject to under 2018Q2, here is a link to a Wikipedia article about South Dakota v. Wayfair, Inc.

[Spekulatius]

Ouch- that’s gotta hurt:

https://www.google.com/amp/s/www.yahoo.com/amphtml/finance/news/wells-fargo-automated-high-net-worth-wealth-management-advisors-faced-sales-pressure-151535558.html

 

Doesn’t make the sales pitch easier going forward, that’s for sure.