WFC - Wells Fargo

[undervalued]

When I was in high school, I worked at a restaurant. Each day at the end of the day, the boss would give me a bag full of cash and I would walk to a bank to deposit the money. It’s usually a few thousand dollars. I would go to a special window and the teller is always very warm and extra friendly.

I guess that’s one example of that branches will not go away?

 

I have a big jar of coins at home in which I empty the change out of my pockets. Every two years or so the jar gets full and I go to the Bank of America branch down the street. The teller is neither warm nor friendly, they are on the other side of a protective glass window and I can never hear what they say. I'm tall so I have to awkwardly bend the whole time so my ear is near the level of the microphone thingy. It feels like I'm mildly bothering them, like I'm at the DMV except the wait is 10 minutes instead of 5 hours. The branch is huge for no reason: there are about 15 windows but only 2-4 are ever in use, plus 4-5 office space with glass walls to receive clients, 1 or 2 are actually in use, very high ceilings, a long line of customers waiting patiently on their feet, often elderly or young parents dealing with restless children, nobody to greet them, orient them, no coffee, no bathroom, no area for the children to play, even strikingly hardly any seats. They put all my coins in a transparent bag and ship it to some mysterious remote coin counting center. It takes 2 to 3 (!) months but eventually I get the amount credited to my account (I have to trust the number is correct). They don't even tell me it's been credited, I just eventually find out some day when I check my balance. I also have to assume that's what it is because the description on the line item is some technical mambo jumbo of letters and numbers which I'm sure makes sense to THEM but not to me, the customer...

 

The punch line of the story is this: The last time I walked in holding my little jar they told me they don't do that anymore (handling money, a bank...). So I googled it, went to a nearby CVS and used their coin counting machine. There was no line, it took only a couple minutes and I got my money immediately. Since I was already there I bought sunscreen and insect repellent  ;)

 

One example is a bag full of cash, and the other is full of change. lol  ;D

[John Hjorth]

Sleepydragon,

 

How about cheques back then? -Did you have any of them to transport/process? [ : - ) ]

[fareastwarriors]

When I was in high school, I worked at a restaurant. Each day at the end of the day, the boss would give me a bag full of cash and I would walk to a bank to deposit the money. It’s usually a few thousand dollars. I would go to a special window and the teller is always very warm and extra friendly.

I guess that’s one example of that branches will not go away?

 

I have a big jar of coins at home in which I empty the change out of my pockets. Every two years or so the jar gets full and I go to the Bank of America branch down the street. The teller is neither warm nor friendly, they are on the other side of a protective glass window and I can never hear what they say. I'm tall so I have to awkwardly bend the whole time so my ear is near the level of the microphone thingy. It feels like I'm mildly bothering them, like I'm at the DMV except the wait is 10 minutes instead of 5 hours. The branch is huge for no reason: there are about 15 windows but only 2-4 are ever in use, plus 4-5 office space with glass walls to receive clients, 1 or 2 are actually in use, very high ceilings, a long line of customers waiting patiently on their feet, often elderly or young parents dealing with restless children, nobody to greet them, orient them, no coffee, no bathroom, no area for the children to play, even strikingly hardly any seats. They put all my coins in a transparent bag and ship it to some mysterious remote coin counting center. It takes 2 to 3 (!) months but eventually I get the amount credited to my account (I have to trust the number is correct). They don't even tell me it's been credited, I just eventually find out some day when I check my balance. I also have to assume that's what it is because the description on the line item is some technical mambo jumbo of letters and numbers which I'm sure makes sense to THEM but not to me, the customer...

 

The punch line of the story is this: The last time I walked in holding my little jar they told me they don't do that anymore (handling money, a bank...). So I googled it, went to a nearby CVS and used their coin counting machine. There was no line, it took only a couple minutes and I got my money immediately. Since I was already there I bought sunscreen and insect repellent  ;)

 

You didn't count and wrap your coins into rolls? No wonder they didn't like you.

 

 

 

 

[WayWardCloud]

When I was in high school, I worked at a restaurant. Each day at the end of the day, the boss would give me a bag full of cash and I would walk to a bank to deposit the money. It’s usually a few thousand dollars. I would go to a special window and the teller is always very warm and extra friendly.

I guess that’s one example of that branches will not go away?

 

I have a big jar of coins at home in which I empty the change out of my pockets. Every two years or so the jar gets full and I go to the Bank of America branch down the street. The teller is neither warm nor friendly, they are on the other side of a protective glass window and I can never hear what they say. I'm tall so I have to awkwardly bend the whole time so my ear is near the level of the microphone thingy. It feels like I'm mildly bothering them, like I'm at the DMV except the wait is 10 minutes instead of 5 hours. The branch is huge for no reason: there are about 15 windows but only 2-4 are ever in use, plus 4-5 office space with glass walls to receive clients, 1 or 2 are actually in use, very high ceilings, a long line of customers waiting patiently on their feet, often elderly or young parents dealing with restless children, nobody to greet them, orient them, no coffee, no bathroom, no area for the children to play, even strikingly hardly any seats. They put all my coins in a transparent bag and ship it to some mysterious remote coin counting center. It takes 2 to 3 (!) months but eventually I get the amount credited to my account (I have to trust the number is correct). They don't even tell me it's been credited, I just eventually find out some day when I check my balance. I also have to assume that's what it is because the description on the line item is some technical mambo jumbo of letters and numbers which I'm sure makes sense to THEM but not to me, the customer...

 

The punch line of the story is this: The last time I walked in holding my little jar they told me they don't do that anymore (handling money, a bank...). So I googled it, went to a nearby CVS and used their coin counting machine. There was no line, it took only a couple minutes and I got my money immediately. Since I was already there I bought sunscreen and insect repellent  ;)

 

You didn't count and wrap your coins into rolls? No wonder they didn't like you.

 

I guess that's one way to think of what the relationship should be like between a business and its customers.

Just sharing an amusing anecdote anyway, to each his own conclusions  :)

 

 

[sleepydragon]

Sleepydragon,

 

How about cheques back then? -Did you have any of them to transport/process? [ : - ) ]

 

No, it was a restaurant.

Also I was a kid, so maybe nobody would think I carried so many cash on my way to the bank. Or maybe no one else wanted to do this.

 

[fareastwarriors]

When I was in high school, I worked at a restaurant. Each day at the end of the day, the boss would give me a bag full of cash and I would walk to a bank to deposit the money. It’s usually a few thousand dollars. I would go to a special window and the teller is always very warm and extra friendly.

I guess that’s one example of that branches will not go away?

 

I have a big jar of coins at home in which I empty the change out of my pockets. Every two years or so the jar gets full and I go to the Bank of America branch down the street. The teller is neither warm nor friendly, they are on the other side of a protective glass window and I can never hear what they say. I'm tall so I have to awkwardly bend the whole time so my ear is near the level of the microphone thingy. It feels like I'm mildly bothering them, like I'm at the DMV except the wait is 10 minutes instead of 5 hours. The branch is huge for no reason: there are about 15 windows but only 2-4 are ever in use, plus 4-5 office space with glass walls to receive clients, 1 or 2 are actually in use, very high ceilings, a long line of customers waiting patiently on their feet, often elderly or young parents dealing with restless children, nobody to greet them, orient them, no coffee, no bathroom, no area for the children to play, even strikingly hardly any seats. They put all my coins in a transparent bag and ship it to some mysterious remote coin counting center. It takes 2 to 3 (!) months but eventually I get the amount credited to my account (I have to trust the number is correct). They don't even tell me it's been credited, I just eventually find out some day when I check my balance. I also have to assume that's what it is because the description on the line item is some technical mambo jumbo of letters and numbers which I'm sure makes sense to THEM but not to me, the customer...

 

The punch line of the story is this: The last time I walked in holding my little jar they told me they don't do that anymore (handling money, a bank...). So I googled it, went to a nearby CVS and used their coin counting machine. There was no line, it took only a couple minutes and I got my money immediately. Since I was already there I bought sunscreen and insect repellent  ;)

 

You didn't count and wrap your coins into rolls? No wonder they didn't like you.

 

I guess that's one way to think of what the relationship should be like between a business and its customers.

Just sharing an amusing anecdote anyway, to each his own conclusions  :)

 

I know. I'm just having some fun.  :D

[Spekulatius]

 

What happens if US interest environment continue its downward trend to follow Europe or Japan? 

 

BAC's NIM may trend down toward 1.5%, while WFC's NIM may trend down toward 1.8%.  If this happens instantaneously in 2020,ceteris parisbus, BAC's eps will be around $1.25, while WFC's eps will be around $1.4.  By following BAC's example past 8 years, past regulatory issues (remediation, fines, settlements, penalties), WFC's annual operating expenses will be roughly $5 B lower vs 2019, boosting WFC's eps to $2.29.  If this scenario happens over time while they are able to reduce shares outstanding, eps will be higher.  Further cost reductions are very likely through out the industry which I haven't taken into account.

 

20 times eps for these 100% distributable eps generated by these safe diversified large banks should be reasonable valuation in a negative 10 yr treasury rate environment. 

 

https://www.wsj.com/articles/bank-stocks-havent-priced-in-enough-bad-news-11562583780

 

https://www.wsj.com/articles/u-s-banks-rush-in-as-european-banks-stumble-11562591312?tesla=y&mod=article_inline

 

It is unlikely that WFC can distribute 100% of their earnings in this scenario.

 

1) in a revision, loan losses will shoot up, requiring reserve build. This will likely lead to GAAP losses.

2) after central banks lower rates to zero, it will take a long time for rates to come back. This also means at bank earnings won’t come back. lower ROE =lower multiples.

 

We are looking at a ~$20 stock in this scenario. It’s will basically look like an European bank.

 

Asset manager /brokers H SCHW, IBRK,AMTD) mostly live on NIM nowadays and will also get hit hard by lower interest rates. Companies will large pension funds like GE and IBM will see their liabilities growth (due to lower assumed returns) and will have to kick in a lot of cash to keep them funded. Better to buy something with moderate debt, which will be cheaper to fund going forward.

[RuleNumberOne]

Negative rates have not been proven to work yet. Bernanke and Greenspan have said they don't think it is useful. Bernanke says at some point people will simply hoard cash.

 

I am not sure how Denmark is forcing people to accept negative rate mortgage bonds. Or how the European Project is forcing people to buy negative rate sovereign debt. As soon as the rate goes negative, one might as well leave their money as cash? Cash is better than any negative rate bond? Unless you force pension funds, university endowments to buy bonds with their cash?

 

https://www.marketwatch.com/story/alan-greenspan-comes-out-against-using-negative-rates-2016-03-01

https://www.marketwatch.com/story/bernanke-says-fed-likely-to-add-negative-rates-to-recession-fighting-toolkit-2015-12-15

 

In Europe, it is probably part of the "whatever it takes" to keep Italy and Greece in the European Project. I haven't seen any explanation of how it benefits the economy.

 

Europe bond bubble will blow up eventually.

[Rasputin]

1.  As of 3/31/2019, WFC has roughly $19 B in excess CET1 above their 10.38% min CET1 target (required is 10%).  Huge buffer for increase in provision for loan losses, depending when and how severe the recession.  WFC has low exposure to credit card (largest source of losses during recession) vs BAC or JPM. 

2.  Recession doesn't last forever, majority of those reserves built are likely to be reversed post recession.  WFC tend to get market share in recession, again depending when the recession hits.  If it hits after their regulatory issues are resolved, they may be able to do the deal they did with GE Capital. 

3.  Prolonged negative rates will cause banks to reduce costs substantially, see DB's restructuring effort, smaller banks are much more dependant on NIM than largest banks.  Largest banks carry a large number of unprofitable branches for political reasons. 

4.  I'll borrow money to buy WFC if it gets to $20, no brainer for me, but I tend to own my shares for a very long time, I still own the BAC shares I bought in 2011. 

5.  What if prolonged negative interest rates don't materialize in the US while WFC continue to fix their regulatory issues? 

 

I think Europe is in much worse condition vs US with respect to their financial system, there is still no European wide deposit insurance, after so many years, no consistent regulations through out the EU, and too many banks.  On top of those factors, EU banks are still way under capitalized...look at their leverage ratio vs WFC...hell compared to heaven. 

 

 

 

 

 

 

[RuleNumberOne]

I forgot the two big French banks own Italian debt amounting to hundreds of billions of euros. If Italy were to leave, those French banks would collapse.

[RuleNumberOne]

On the one hand, bond market investors with "active mandates" and "benchmarks" are trading junk-bonds from cyclical industrial companies (such as Ball and Axalta) at negative yields. Meanwhile, WFC with stellar results is being sold even with an earnings yield of 11% and a dividend yield of 4.4%. All the better if WFC can buyout these idiots at low prices. Once the coming Fed rate cut soaks through the deposits, the NIM should go back up.

 

https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/earnings/second-quarter-2019-earnings.pdf

 

"Primary consumer checking customers of 24.3 million, up 1.3% from a year ago. The sale of 52 branches and

$1.8 billion of deposits which closed in fourth quarter 2018 reduced the growth rate by 0.4%.

 

Average loans were $947.5 billion in the second quarter, down $2.6 billion from the first quarter. Period-end loan

balances were $949.9 billion at June 30, 2019, up $1.6 billion from March 31, 2019. Commercial loans were flat

compared with March 31, 2019. Consumer loans increased $1.6 billion from the prior quarter

 

Total average deposits for second quarter 2019 were $1.3 trillion, up $6.9 billion from the prior quarter primarily

due to higher retail banking deposits reflecting increased promotional activity, partially offset by lower Wealth and

Investment Management deposits. The average deposit cost for second quarter 2019 was 70 basis points, up 5 basis

points from the prior quarter and 30 basis points from a year ago."

[Spekulatius]

The results are stronger than I thought . I had recently reduced my position because I expected so so results and also some concern regarding NIM, but after reading these results, I bought most of my shares back. Looks like they are doing quite fine without an CEO, especially with respect to costs.

[Jurgis]

Looks like they are doing quite fine without an CEO, especially with respect to costs.

 

Well, they are not paying CEO salary/bonus/etc.  ;D

 

Maybe more companies should get rid of their CEOs.

[RuleNumberOne]

Fascinating article, the article makes many great points:

 

https://www.ft.com/content/395f450c-a3be-11e9-974c-ad1c6ab5efd1

 

"Lower rates for longer — or worse, lower forever — seems to discourage risk taking. A flat yield curve seems to flatten animal spirits. Banks are key agents in the transmission of risk appetite into an economy, and with these institutions under permanent pressure, confidence in the real economy slowly ebbs.

 

How can hammering bank profitability be good for lending? Eventually this will most likely have a deflationary effect. The bond market seems to see it the same way. Rate cuts or QE are nirvana for fixed-income investors, not just because fixed-income prices are mechanically lifted, but because a flat yield curve might well be deflationary. This is a virtuous circle for long-duration strategies. No wonder the clamour to cut or embark on more easing is so loud."

 

 

[meiroy]

 

WHY is it that WFC still does not have a CEO?

[RuleNumberOne]

Clearly an insurance company getting a 11% yield from WFC is better than one getting a -0.2% yield from Ball Corp's junk bonds. Same with pension fund assets.

 

But the price momentum in the bond market is so high, every day your bond portfolio is going up, driving yields even more negative.

 

But there will be a point when only the greatest fools are holding the paper, and no greater fools can be found. Maybe July 25th ECB meeting will catalyze this?

 

When that happens, yield will start to matter again. Right now there is nothing better than holding bonds whose yields will go even more negative.

[Viking]

It will be interesting to see how WFC looks in 2-3 years. They are spending an enormous amount of money right now to get compliant with regulators. And we were told today that this elevated spending will now continue into 2020. Crazy how long it is taking the bank to right itself.

[meiroy]

It will be interesting to see how WFC looks in 2-3 years. They are spending an enormous amount of money right now to get compliant with regulators. And we were told today that this elevated spending will now continue into 2020. Crazy how long it is taking the bank to right itself.

 

Yeah, totally crazy how long it has been taking. What is it now, 10 years? 11? Hope they make it by 2020.

 

 

 

[John Hjorth]

WHY is it that WFC still does not have a CEO?

 

As an example, at DANSKE it took a long time, too. When the headhunter introduces a potential subject for the position to the chairman, and a meeting for conversation is set up, the potential subject has by far more questions for discussion to the chairman than the other way around. Such a setup can be highly annoying, and thereby counterproductive.

[meiroy]

WHY is it that WFC still does not have a CEO?

 

As an example, at DANSKE it took a long time, too. When the headhunter introduces a potential subject for the position to the chairman, and a meeting for conversation is set up, the potential subject has by far more questions for discussion to the chairman than the other way around. Such a setup can be highly annoying, and thereby counterproductive.

 

You're saying WFC is fucked up just like DANSKE so it's taking them so long to find a CEO?

 

[John Hjorth]

You're saying WFC is fucked up just like DANSKE so it's taking them so long to find a CEO?

 

I'm not totally sure, meiroy,

 

[j/k] Actually I do need more data points. Perhaps you can help me here for the comparison. In DANSKE there has always been a pretty strict & conservative dress code. It has gradually changed over time in recent years. Now, female employees meet in in the summer in open shoes or even sandals. That was certainly not the case 10 - 15 years ago. I speculate it is so in DANSKE so the female employees can steal from the customers with their toes too in the summer. How is it in WFC?[/j/k]

 

There are certainly overall similarities among WFC and DANSKE : Imprudent [dumb] banking, based on greed and dishonesty, with enormous damages as the outcome. Dumpster diving in them may be interesting, because they still make money. Otherwise we would not even talk about them here. The real question at hand is : How rotten are they?

[Spekulatius]

WHY is it that WFC still does not have a CEO?

 

As an example, at DANSKE it took a long time, too. When the headhunter introduces a potential subject for the position to the chairman, and a meeting for conversation is set up, the potential subject has by far more questions for discussion to the chairman than the other way around. Such a setup can be highly annoying, and thereby counterproductive.

 

Wells Fargo CEO seat is basically “radioactive”. Not many candidates wants to deal with Congress , politicians, regulators while running a business at the same time. This will whittle down the pool of candidates significantly.

[John Hjorth]

Spekulatius expressed my view much better than I did.

 

There is also a material difference among the situations of WFC and DANSKE. At DANSKE, the controlling shareholder intervened decisively to clean up the mess, while the major shareholder of WFC is passive [- we all know why, I suppose].

[meiroy]

WHY is it that WFC still does not have a CEO?

 

As an example, at DANSKE it took a long time, too. When the headhunter introduces a potential subject for the position to the chairman, and a meeting for conversation is set up, the potential subject has by far more questions for discussion to the chairman than the other way around. Such a setup can be highly annoying, and thereby counterproductive.

 

Wells Fargo CEO seat is basically “radioactive”. Not many candidates wants to deal with Congress , politicians, regulators while running a business at the same time. This will whittle down the pool of candidates significantly.

 

Big bank CEOs deal with this stuff all the time, especially in the past ten years. It's part of the deal. Have you seen the ego of some of these guys?

[Jurgis]

WHY is it that WFC still does not have a CEO?

 

As an example, at DANSKE it took a long time, too. When the headhunter introduces a potential subject for the position to the chairman, and a meeting for conversation is set up, the potential subject has by far more questions for discussion to the chairman than the other way around. Such a setup can be highly annoying, and thereby counterproductive.

 

Wells Fargo CEO seat is basically “radioactive”. Not many candidates wants to deal with Congress , politicians, regulators while running a business at the same time. This will whittle down the pool of candidates significantly.

 

Yeah, you know why is a person supposed to work for $20M salary or such? $20M positions should come with no duties attached. Just the private jets, soirees, and golf clubs please.

 

Somehow the "radioactive" positions that involve dealing with disgruntled customers threatening bodily harm, hey even dealing with convicted felons get filled at wages closer to minimum wage. But that's for schmucks. The CEO caste is different. All hail the CEOs and shower money on them.