WFC - Wells Fargo

[DooDiligence]

How many of these are they issuing & why won't they list on public exchanges if they're selling them in such small increments?

 

http://archive.fast-edgar.com//20190823/A3Z2K22CZ22H52IW222C2WZ2AKMMFZ27Z2B2/

 

Not sure if the answers to my questions are even important.

 

I'm just curious.

All banks issue structured products continuously.  Almost none have liquidity.  Mostly sold via their financial advisors/WM units.

 

Thanks

[gfp]

https://concentratedcompounding.com/wells-fargo/

 

Here is a good analysis on the current opportunity with Wells Fargo by CoBF member concentratedcompounding.  Worth a read for those considering Wells.  ConcentratedCompounding also has a recent post summarizing the Kochland book on Koch Industries for those, like me, who are sort of interested but not planning to read the entire Kochland book (on the above linked blog).

[DooDiligence]

https://concentratedcompounding.com/wells-fargo/

 

Here is a good analysis on the current opportunity with Wells Fargo by CoBF member concentratedcompounding.  Worth a read for those considering Wells.  ConcentratedCompounding also has a recent post summarizing the Kochland book on Koch Industries for those, like me, who are sort of interested but not planning to read the entire Kochland book (on the above linked blog).

 

Thanks.

 

https://www.americanbanker.com/articles/at-wells-fargo-executives-push-for-interim-ceo-to-keep-job

[Stuart D]

https://concentratedcompounding.com/wells-fargo/

 

Here is a good analysis on the current opportunity with Wells Fargo by CoBF member concentratedcompounding.  Worth a read for those considering Wells.  ConcentratedCompounding also has a recent post summarizing the Kochland book on Koch Industries for those, like me, who are sort of interested but not planning to read the entire Kochland book (on the above linked blog).

 

That was a great article, thanks for posting. How do the asset cap restrictions imposed by the Fed work? Are Wells unable to accept new customers/deposits?

[khturbo]

They can't increase the size of the balance sheet, I believe. They can take new deposits but would need to flex their other assets down.

[Jurgis]

https://concentratedcompounding.com/wells-fargo/

 

Here is a good analysis on the current opportunity with Wells Fargo by CoBF member concentratedcompounding.  Worth a read for those considering Wells.  ConcentratedCompounding also has a recent post summarizing the Kochland book on Koch Industries for those, like me, who are sort of interested but not planning to read the entire Kochland book (on the above linked blog).

 

A good article.

 

However, I think there's a fallacy about deposit stickiness at banks.

The author is right about account stickiness: yes, people don't leave bank X because this means redoing all their auto-pay etc. But this does not mean money stickiness. I.e. you might have your account at bank X for all the bill pay/etc. But you can easily and painlessly transfer any extra money to other bank/broker/whatever that pays higher interest/etc. The e-services that author considers essential and credits for account stickiness make the money completely unsticky. And if you decide to move 80K out of 100K from bank X to whatever Y, this is likely a bigger hit to the bank than 8 people moving their 10K accounts to another bank. So money stickiness might matter more than account stickiness. And money is not sticky (with usual caveat about customer laziness, etc.).

 

Not that this invalidates WFC investment thesis.  8)

[Guest oakwood42]

https://concentratedcompounding.com/wells-fargo/

 

Here is a good analysis on the current opportunity with Wells Fargo by CoBF member concentratedcompounding.  Worth a read for those considering Wells.  ConcentratedCompounding also has a recent post summarizing the Kochland book on Koch Industries for those, like me, who are sort of interested but not planning to read the entire Kochland book (on the above linked blog).

 

A good article.

 

However, I think there's a fallacy about deposit stickiness at banks.

The author is right about account stickiness: yes, people don't leave bank X because this means redoing all their auto-pay etc. But this does not mean money stickiness. I.e. you might have your account at bank X for all the bill pay/etc. But you can easily and painlessly transfer any extra money to other bank/broker/whatever that pays higher interest/etc. The e-services that author considers essential and credits for account stickiness make the money completely unsticky. And if you decide to move 80K out of 100K from bank X to whatever Y, this is likely a bigger hit to the bank than 8 people moving their 10K accounts to another bank. So money stickiness might matter more than account stickiness. And money is not sticky (with usual caveat about customer laziness, etc.).

 

Not that this invalidates WFC investment thesis.  8)

 

Great point.

[RadMan24]

I have to present a friendly counter to Jurgis' argument. 

 

Having a checking account at a bank is likely to lead that person to see what kind of rates that bank offers on auto loans, mortgages, insurance, refinancing, credit cards, etc.

 

So, as long as the accounts are open, possibilities for attractive transactions exist.

 

And money is likely fairly sticky when you consider how many people live paycheck to paycheck - it's unlikely those folks are moving hundreds or thousands of dollars around every few weeks to get a  high yield of 2%. And folks who don't live pay check to pay check likely have fatter sums in a brokerage account somewhere, or might be conservative/savers with CDs and the like, and don't transfer money back and forth between accounts very often.

 

I believe consumers value superior mobile offerings, and large banks have that nailed down. Synchrony and Goldman Bank offer high yields, but again, only savers really take the time to establish those accounts, and rarely transfer the money back and forth.

 

To be fair, there is a delta where the spread between what WFC offers and Goldman Bank offers that they have to take notice, but I think that is a manageable situation (i.e. ensure that money and account remains sticky). 

[Cigarbutt]

^Another objection to Jurgis' technical argument. :)

Something that (hopefully) WFC has learnt when pushing the envelope with the excessive culture of cross-selling is that an essential foundation of customer stickiness and associated retail profit per customer is simply the number of 'products' that the client holds, up to a certain degree.

https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/cgri-closer-look-62-wells-fargo-cross-selling-scandal.pdf

Build the products and they (the $) will come. See page 10.

 

[DooDiligence]

^Another objection to Jurgis' technical argument. :)

Something that (hopefully) WFC has learnt when pushing the envelope with the excessive culture of cross-selling is that an essential foundation of customer stickiness and associated retail profit per customer is simply the number of 'products' that the client holds, up to a certain degree.

https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/cgri-closer-look-62-wells-fargo-cross-selling-scandal.pdf

Build the products and they (the $) will come. See page 10.

 

Thanks for another very informative report to be aware of.

 

Is there a point of diminishing returns in the number of products that a customer is enrolled in?

 

1. mortgage

2. auto loan

3. checking

4. savings

5. IRA / retirement

6. brokerage

7. credit card(s)

8. LOC

9. commercial account(s)

10. Star Rewards (wait, that's Starbucks...)

 

---

 

edit: Seriously, I guess there's only so many products that a bank could or should be selling & I forgot insurance.

[Cigarbutt]

...

Is there a point of diminishing returns in the number of products that a customer is enrolled in?

 

1. mortgage

2. auto loan

3. checking

4. savings

5. IRA / retirement

6. brokerage

7. credit card(s)

8. LOC

9. commercial account(s)

10. Star Rewards (wait, that's Starbucks...)

---

edit: Seriously, I guess there's only so many products that a bank could or should be selling & I forgot insurance.

The loyalty programs seem to be gaining traction in the evolving landscape defining how to 'acquire' and retain customers. Banks are building in-house teams and outside help is increasingly available. It seems that the investment is warranted.

Banks are going through some kind of transition and have done relatively well despite frequently described poor customer experiences (especially 'big' banks) but there are some technology-related entrants that will force them to invest where it counts. The young adults in my households literally get bombarded by all kinds of offers that often include a reward component. Most of the offers go through the technology route but I'm told that the financial institutions also pay for pizza (and beer) at university-based extra-curricular 'teaching' sessions. There are significant tangible and intangible switching costs but one has to acquire the customer first.

I have some interest in loyalty programs and here are some references related to the banking sector.

https://www.mckinsey.com/industries/financial-services/our-insights/customer-mindshare-the-new-battleground-in-us-retail-banking

https://www.ttec.com/sites/default/files/white-paper-banking-total-relationships.pdf

https://www.wellsfargo.com/go-far-rewards

Summary: Megabanks have work to do but the long term is bright in terms on their ability to move from front of wallet to share of mind.

I've really liked WFC but it seems that they have to learn, like Mr. Buffett, to lose the arrogance and continue to be ruthless with a smile. :)

 

To your question about potential diminishing returns, a loyalty firm that I've followed for a long time had the following title to one of their annual reports: The sky is not the limit.

[John Hjorth]

Wells Fargo & Co. News Release [september 27^th 2019] : Wells Fargo Names Charles W. Scharf Chief Executive Officer and President.

 

To me, this reads as good news.

[boilermaker75]

Wells Fargo & Co. News Release [september 27^th 2019] : Wells Fargo Names Charles W. Scharf Chief Executive Officer and President.

 

To me, this reads as good news.

 

It's a wash for me. My BK is down as much as my WFC is up!

[mwtorock]

So now we expect to see Warren to buy more WFC shares instead of BK?  ;)

[mjs111]

I liked him when he was the Visa CEO was sad to see him leave there. He presided over much of Visa's recent impressive business (and stock price) expansion.  Interestingly, he said he left Visa because he wanted to be closer to his family, who lived in New York, and Visa's corporate headquarters are in San Francisco. Wells Fargo's corporate headquarters are in San Francisco again. Maybe the last kid left for college.

 

 

Mike

 

 

[Foreign Tuffett]

I liked him when he was the Visa CEO was sad to see him leave there. He presided over much of Visa's recent impressive business (and stock price) expansion.  Interestingly, he said he left Visa because he wanted to be closer to his family, who lived in New York, and Visa's corporate headquarters are in San Francisco. Wells Fargo's corporate headquarters are in San Francisco again. Maybe the last kid left for college.

 

 

Mike

 

He is NOT relocating to San Fran

[sleepydragon]

But what about Buffett’s suggestion about not hiring anyone from wall st?

I assume he should have already got the blessing from the regulators?

 

[Jurgis]

I liked him when he was the Visa CEO was sad to see him leave there. He presided over much of Visa's recent impressive business (and stock price) expansion.  Interestingly, he said he left Visa because he wanted to be closer to his family, who lived in New York, and Visa's corporate headquarters are in San Francisco. Wells Fargo's corporate headquarters are in San Francisco again. Maybe the last kid left for college.

 

 

Mike

 

Out of these three companies, I'd think running Visa would be the best job. But hey it's his life choices.  8)

[mjs111]

I liked him when he was the Visa CEO was sad to see him leave there. He presided over much of Visa's recent impressive business (and stock price) expansion.  Interestingly, he said he left Visa because he wanted to be closer to his family, who lived in New York, and Visa's corporate headquarters are in San Francisco. Wells Fargo's corporate headquarters are in San Francisco again. Maybe the last kid left for college.

 

 

Mike

 

He is NOT relocating to San Fran

 

Looks like you're right.  Quoted from The Wall Street Journal:

 

"He will tackle the challenge from afar. Mr. Scharf will remain in New York but told investors on a call Friday morning that he will make frequent trips to San Francisco, where Wells Fargo is based, and Charlotte, N.C., where many of its employees work."

 

link:

https://www.wsj.com/articles/wells-fargo-names-charles-scharf-president-ceo-11569583001?mod=hp_lead_pos4

[gurpaul88]

He hasn't exactly been the greatest for BK. Lets see how he is able to navigate here.

[CorpRaider]

I mean it is good he's from the Dimon tree.  But then again, so is Jes Staley at BCS (he was "heir apparent" even).  What were the BK annual reports like?  (I just sent away for the last one).  Watched some youtube interiews.  Seems like a smart, straight shooter. 

[sleepydragon]

He hasn't exactly been the greatest for BK. Lets see how he is able to navigate here.

 

Bk was a much tougher business. The low interest rate make profits thin and they got some powerful big clients who are always shopping for the lowest cost providers. WFC is a much better business. Charles is giving up his stocks in BK and exchanging them into WFC. I switched all my BK into WFC in Dec last year.

[Peregrine]

He hasn't exactly been the greatest for BK. Lets see how he is able to navigate here.

 

Bk was a much tougher business. The low interest rate make profits thin and they got some powerful big clients who are always shopping for the lowest cost providers. WFC is a much better business. Charles is giving up his stocks in BK and exchanging them into WFC. I switched all my BK into WFC in Dec last year.

 

It's interesting because the custody business should have all the hallmarks of a great business - huge scale needed to compete cost effectively, only a few players able to operate at huge scale, high retention - and yet, the custody banks routinely compete on price, thereby eroding margins. Nonetheless, BNY still earns 20% returns on tangible equity.

[sleepydragon]

He hasn't exactly been the greatest for BK. Lets see how he is able to navigate here.

 

Bk was a much tougher business. The low interest rate make profits thin and they got some powerful big clients who are always shopping for the lowest cost providers. WFC is a much better business. Charles is giving up his stocks in BK and exchanging them into WFC. I switched all my BK into WFC in Dec last year.

 

 

It's interesting because the custody business should have all the hallmarks of a great business - huge scale needed to compete cost effectively, only a few players able to operate at huge scale, high retention - and yet, the custody banks routinely compete on price, thereby eroding margins. Nonetheless, BNY still earns 20% returns on tangible equity.

 

I feel they are being hurt by the passive trend too. When there was a lot of hedge funds, they have some pricing powers. But nowadays more and more those closing down and big clients like blackrock are aggressive bargainers. They also can’t do anything with those cash parked with them, other than making a tiny spread on interest rate — unlike WFC making 3+% loans to consumers and companies.

 

[Spekulatius]

He hasn't exactly been the greatest for BK. Lets see how he is able to navigate here.

 

Bk was a much tougher business. The low interest rate make profits thin and they got some powerful big clients who are always shopping for the lowest cost providers. WFC is a much better business. Charles is giving up his stocks in BK and exchanging them into WFC. I switched all my BK into WFC in Dec last year.

 

It's interesting because the custody business should have all the hallmarks of a great business - huge scale needed to compete cost effectively, only a few players able to operate at huge scale, high retention - and yet, the custody banks routinely compete on price, thereby eroding margins. Nonetheless, BNY still earns 20% returns on tangible equity.

 

Custodian banks went from being a great business, to merely being a good business. Apparently a lot of money can be lost investing in companies like that (or at least one can underperform).