WFC - Wells Fargo

[Foreign Tuffett]

Surprising timing for BoD resignations and a new chairman.

https://newsroom.wf.com/press-release/corporate-and-financial/elizabeth-duke-and-james-h-quigley-resign-wells-fargo-board

 

Nah, not terribly surprising in the wake of the 100+ page congressional report that was released last week.

 

"THE REAL WELLS FARGO: BOARD & MANAGEMENT FAILURES, CONSUMER ABUSES, AND INEFFECTIVE REGULATORY OVERSIGHT"

 

 

[CorpRaider]

Yeah, seems like they resigned before having to go before congress/bolstering efforts to show some contrition; might make Charlie's day easier tomorrow. 

 

[edit] Watched about half of Scharf's testimony.  He's a smart dude.  The members of Congress are generally.....not.  Wow those questions. What a job.  I wouldn't take that job if they let me do it from Hawaii.

[ERICOPOLY]

Yesterday's 'meeting' with lawmakers appears to have gone well for Wells Fargo.  Elizabeth Warren wasn't even quoted in the WSJ.

 

[Foreign Tuffett]

Yesterday's 'meeting' with lawmakers appears to have gone well for Wells Fargo.  Elizabeth Warren wasn't even quoted in the WSJ.

 

Scharf testified in front of the House Financial Services Committee yesterday. Warren is in the Senate.

 

[ERICOPOLY]

Yesterday's 'meeting' with lawmakers appears to have gone well for Wells Fargo.  Elizabeth Warren wasn't even quoted in the WSJ.

 

Scharf testified in front of the House Financial Services Committee yesterday. Warren is in the Senate.

 

It's early.  Aaarggghhhh.  Yes, good point.  Doh!

 

The WSJ quoted nobody except for a few Democrats saying things like they'd like minimum wages to be even higher -- completely unrelated to the matter at hand.  They were not quoted with anything negative about Scharff or his strategy.

[gary17]

is WFC investible

the fat yield is very attractive to me  but my limited experience tells me when yield gets big, it means dividends could get cut!

[rb]

The dividend is well covered at wells. There's lots of buyback room to cut before the even get near the dividend.

 

But then if you ask me, at these prices I'd love it if they suspend the dividend and go bananas with the buybacks. Of course.... Not gonna happen.

[KCLarkin]

Random thought:

 

Given the turmoil in markets, the craziness in 10 years, the new CEO, the departure of the chairwoman, the potential recession, the defeat of Warren and Bernie, wouldn't this be a good time for the Fed to stop punishing WFC for past sins and lift the asset cap?

[rb]

Crazy thought:

 

At these levels I'd like them to be buying back stock instead of making loans.

[Guest Schwab711]

They should lift the asset cap so WFC doesn't have a higher than necessary vintage risk just in case things don't turn around from here. Buybacks are probably a bad idea. The last thing any bank needs right now is leverage just as every corporate customer goes to max out their revolvers.

 

The drop in rates in the last couple weeks (assuming they remain at roughly these levels for a time) is probably going to lower NI by $1.0b - $2.0b. Hard to tell without thinking it through in detail and it obviously depends on where they go from here.

 

In good news, the yield curve steepened today.

[KCLarkin]

Crazy thought:

 

At these levels I'd like them to be buying back stock instead of making loans.

 

Doubt there will be many loans to make...

[gokou3]

They should lift the asset cap so WFC doesn't have a higher than necessary vintage risk just in case things don't turn around from here. Buybacks are probably a bad idea. The last thing any bank needs right now is leverage just as every corporate customer goes to max out their revolvers.

 

Such as this:

 

Blackstone Urges Its Companies Hurt by Virus to Tap Credit Lines

https://www.bloomberg.com/news/articles/2020-03-11/blackstone-urges-its-companies-hurt-by-virus-to-tap-credit-lines

[Rasputin]

NII Sensitivity from 2019 10K - page 79 exhibit 13

 

Table 37:  Net Interest Income Sensitivity Over Next Two-Year Horizon Relative to Base Expectation

Lower Rates Higher Rates

($ in billions) Base

100 bps Ramp Parallel Decrease

100 bps Instantaneous Parallel Increase

200 bps Ramp Parallel Increase

First Year of Forecasting Horizon Net Interest Income Sensitivity to Base Scenario $ (1.8) - (1.3) 1.5 - 2.0 1.1 - 1.6 Key Rates at Horizon End Fed Funds Target 1.87 % 0.87 2.87 3.87 10-year CMT (1) 1.97 0.97 2.97 3.97 Second Year of Forecasting Horizon Net Interest Income Sensitivity to Base Scenario $ (4.4) - (3.9) 2.0 - 2.5 2.7 - 3.2 Key Rates at Horizon End Fed Funds Target 2.25 % 1.25 3.25 4.25 10-year CMT (1) 2.36 1.36 3.36 4.36

 

Share repurchase and dividends until June 30 were approved under stress test severely adverse scenario (see attached file if table doesn't copy correctly)

 

Table 4.A. Supervisory severely adverse scenario: Domestic variables, Q1:2019–Q1:2022

Percent, unless otherwise indicated.

 

Date

Real GDP growth

Nominal GDP growth

Real disposable income growth

Nominal disposable income growth

Unemployment rate

CPI inflation rate

3-month Treasury rate

5-year Treasury yield

10-year Treasury yield

BBB corporate yield

Mortgage rate

P rime rate

L evel

D ow Jones Total Stock Market Index

H ouse Price Index

C ommercial Real Estate Price Index

M arket Volatility Index

  Q1 2019 -5.0 -3.5 -5.1 -4.2  4.7 1.2 0.3 0.3 0.8 5.3 3.9 3 .3 1 7,836 1 99 2 80 6 7.8  Q2 2019 -9.4 -7.7 -7.1 -5.8  6.3 1.6 0.2 0.5 0.9 6.1 4.2 3 .2 1 4,694 1 93 2 72 7 0.0  Q3 2019 -7.2 -5.7 -4.8 -3.4  7.5 1.7 0.1 0.6 1.0 6.5 4.4 3 .1 1 3,317 1 86 2 62 6 1.3  Q4 2019 -5.0 -3.4 -3.2 -1.6  8.4 1.8 0.1 0.6 1.1 6.5 4.5 3 .1 1 2,862 1 78 2 47 4 9.9  Q1 2020 -3.8 -2.1 -2.4 -0.7  9.2 1.9 0.1 0.7 1.2 6.2 4.3 3 .1 1 3,462 1 70 2 32 3 8.4  Q2 2020 -1.5  0.5 -1.2  0.4  9.7 1.8 0.1 0.7 1.2 5.8 4.2 3 .1 1 4,421 1 63 2 17 3 1.2  Q3 2020 -0.3  1.6 -0.6  1.2 10.0 2.0 0.1 0.7 1.2 5.5 4.1 3 .1 1 5,479 1 56 2 02 2 6.9  Q4 2020  2.9  4.8  1.2  3.0  9.9 2.0 0.1 0.7 1.2 5.1 3.9 3 .1 1 6,847 1 52 1 92 2 3.3  Q1 2021  3.6  5.4  2.3  4.3  9.7 2.1 0.1 0.9 1.5 5.0 3.9 3 .1 1 7,788 1 51 1 87 2 2.5  Q2 2021  4.1  5.9  2.2  4.2  9.5 2.1 0.1 1.0 1.6 4.7 3.8 3 .1 1 9,352 1 53 1 87 2 1.4  Q3 2021  4.4  6.2  2.3  4.3  9.2 2.1 0.1 1.1 1.6 4.4 3.8 3 .1 2 1,039 1 54 1 87 2 0.8  Q4 2021  4.6  6.4  2.5  4.3  8.9 2.0 0.1 1.2 1.7 4.0 3.6 3 .1 2 2,940 1 57 1 89 2 0.3  Q1 2022  4.6  6.3  2.4  4.2  8.6 2.0 0.1 1.2 1.8 3.7 3.5 3 .1 2 5,137 1 60 1 91 2 0.1

Note: Refer to Notes Regarding Scenario Variables for more information on the definitions and sources of historical observations of the variables in the table.

 

Table 4.B. Supervisory severely adverse scenario: International variables, Q1:2019–Q1:2022

Percent, unless otherwise indicated.

 

Date

Euro area real GDP growth

Euro area inflation

Euro area bilateral dollar exchange rate (USD/euro)

Developing Asia real GDP growth

Developing Asia inflation

Developing Asia bilateral dollar exchange rate (F/USD, index)

Japan real GDP growth

Japan inflation

Japan bilateral dollar exchange rate (yen/USD)

U .K. real GDP growth

U .K. inflation

U .K. bilateral dollar exchange rate (USD/pound)

  Q1 2019 -5.4  1.5 1.092 -0.8  0.0  98.8 -3.9 -0.8 108.1 - 5.6  1.0 1 .282  Q2 2019 -6.5  0.5 1.067 -0.4 -1.3 101.7 -6.4 -1.5 107.4 - 6.6  0.4 1 .248  Q3 2019 -4.9 -0.3 1.079  1.7 -1.5 103.6 -7.5 -1.9 107.8 - 5.3 - 0.2 1 .258  Q4 2019 -3.8 -0.8 1.095  3.1 -1.6 104.9 -8.2 -2.5 106.4 - 4.0 - 0.3 1 .266  Q1 2020 -2.1 -0.6 1.100  5.3 -0.8 105.0 -3.8 -1.7 108.1 - 2.2 - 0.2 1 .271  Q2 2020 -0.6 -0.2 1.106  6.4 -0.8 103.5 -2.1 -1.4 108.1 - 0.6  0.0 1 .275  Q3 2020  0.4  0.1 1.112  6.7 -0.3 102.2 -1.1 -1.0 108.1  0.5  0.3 1 .277  Q4 2020  1.2  0.5 1.118  6.6  0.1 101.0 -0.3 -0.7 108.3  1.4  0.5 1 .279  Q1 2021  1.6  0.7 1.124  6.5  0.4 100.1  0.3 -0.4 108.5  1.9  0.7 1 .281  Q2 2021  1.9  0.9 1.131  6.4  0.7  99.3  0.7 -0.2 108.7  2.3  0.9 1 .283  Q3 2021  2.0  1.0 1.138  6.3  0.9  98.6  0.9  0.0 108.9  2.5  1.0 1 .286  Q4 2021  1.9  1.2 1.144  6.2  1.2  98.1  1.0  0.1 108.9  2.5  1.1 1 .290  Q1 2022  1.9  1.3 1.151  6.2  1.5  97.5  1.1  0.3 108.9  2.5  1.2 1 .294

 

All untapped credit lines are included in SLR calculation and LCR (liquidity coverage ratio) calculation. 

 

https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/lcr-disclosures/2019-fourth-quarter-lcr-disclosure.pdf

 

2019_STRESS_TEST_SCENARIO.pdf

[fareastwarriors]

Dirty Money on Netflix has an episode on WFC.

Season 2, Episode 1, The Wagon Wheel.

[samwise]

Crazy thought:

 

At these levels I'd like them to be buying back stock instead of making loans.

 

I hope they are buying back as much as possible. But loan losses could rise soon, so they will have to reserve more.

[Spekulatius]

Crazy thought:

 

At these levels I'd like them to be buying back stock instead of making loans.

 

I hope they are buying back as much as possible. But loan losses could rise soon, so they will have to reserve more.

 

I think they are buying back less than you may think. maybe even nothing. There is an economic storm coming and nobody knows how bad is going to get. Unfortunately they shot most of their wad (excessive capital ) at way higher prices.

[gary17]

hey i was wondering where can i figure out this 'yield curve'  - is there a chart smoewher?  i believe if long term yield is higher than short term, that's good for banks.  true ?

interesting the 10-year is at 80 basis point  - must higher than 50 earlier on Monday, yet banks are much cheaper than Monday as of now. 

 

  my strategy is to sell my profitable technology stocks like SHOP and  TSLA to fund buying cheap banks...

[meiroy]

Crazy thought:

 

At these levels I'd like them to be buying back stock instead of making loans.

 

I hope they are buying back as much as possible. But loan losses could rise soon, so they will have to reserve more.

 

I think they are buying back less than you may think. maybe even nothing. There is an economic storm coming and nobody knows how bad is going to get. Unfortunately they shot most of their wad (excessive capital ) at way higher prices.

 

+1 I'd be amazed if they bought anything.

 

 

[StubbleJumper]

hey i was wondering where can i figure out this 'yield curve'  - is there a chart smoewher?  i believe if long term yield is higher than short term, that's good for banks.  true ?

interesting the 10-year is at 80 basis point  - must higher than 50 earlier on Monday, yet banks are much cheaper than Monday as of now. 

 

  my strategy is to sell my profitable technology stocks like SHOP and  TSLA to fund buying cheap banks...

 

 

The major rates are here:

 

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

 

 

If you are bored, you can concoct a spline function!  Otherwise, just a glance at 6 or 7 rates will give you a mental picture.

 

 

SJ

[gary17]

thanks

yes i know those rates .  the challenge i have is if they are not in this 'yield curve'  - how do i know from history if this curve is steepening or flattening  relative to earlier periods.  i guess financial news has that data handy eh?

 

  thanks

 

[plato1976]

anyone thinks their almost 7% dividend is still safe ?

 

Crazy thought:

 

At these levels I'd like them to be buying back stock instead of making loans.

 

I hope they are buying back as much as possible. But loan losses could rise soon, so they will have to reserve more.

 

I think they are buying back less than you may think. maybe even nothing. There is an economic storm coming and nobody knows how bad is going to get. Unfortunately they shot most of their wad (excessive capital ) at way higher prices.

 

+1 I'd be amazed if they bought anything.

[meiroy]

https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200312~43351ac3ac.en.html

 

"Banks can fully use capital and liquidity buffers, including Pillar 2 Guidance

Banks will benefit from relief in the composition of capital for Pillar 2 Requirements

ECB to consider operational flexibility in the implementation of bank-specific supervisory measures"

 

ECB.

[undervalued]

Anyone care to guess how likely for WFC to cut their dividends at this point?

[mcliu]

0 chance

[StubbleJumper]

Anyone care to guess how likely for WFC to cut their dividends at this point?

 

 

That is really two questions:

 

1) How will the federal government act when evaluating the banks' capital plans when the CCARs are evaluated in June?; and

2) Independent of the actions of the regulators, would WFC consider reducing its dividend as a measure of extra caution.

 

 

On the second point, I would say the chance is near zero that WFC would elect to cut its dividend.  On the first point, it is entirely possible that the regulators will be guilty of "fighting the last war" and could be preoccupied with the banks' capital levels.  It would not at all surprise me to see them ask for an extra percentage point of equity because of bad memories from the financial crisis.  But, WFC already has excess capacity, so barring some ridiculous loss in Q2, they would probably already meet an enhanced capital level.  What is more, their current aggregate annual dividend is probably $2.04x~4B shares, or a shade more than $8 billion.  Since they were approved for both the $8B divvy AND a $23B buyback in 2019, my sense is that the divvy is pretty safe for 2020.

 

 

SJ