WFC - Wells Fargo

[coc]

Yeah assuming they don't muck it up, this is free money for the banks to dole out $350B to the taxpayers.

[Castanza]

Thanks for the responses

[rb]

That's about $14 billion in fees on one program alone  :o. Not bad!

[sleepydragon]

Most companies are doing less business, but some are doing more: banks, cigarettes, alcohol, amzn, etc

But banks price are still down (compared to amzn)

 

[DooDiligence]

www.americanbanker.com/news/feds-conundrum-whether-to-remove-wells-fargos-asset-cap

[meiroy]

Can anyone speak to the risk (if any) banks are taking in with this influx of small business loans? BofA had 10k applications in the first hour.

 

 

They won't have any risk but they will earn a fee for processing / administering these programs.

 

In this environment this doesn't make sense, the optics are really bad.

[StubbleJumper]

Can anyone speak to the risk (if any) banks are taking in with this influx of small business loans? BofA had 10k applications in the first hour.

 

 

They won't have any risk but they will earn a fee for processing / administering these programs.

 

In this environment this doesn't make sense, the optics are really bad.

 

 

No, I would argue that the optics are actually really good.  A direct bail-out of the TBTF banks would likely be met with a great degree of cynicism and frustration.  But, this is a bailout of small business, which is a motherhood and apple pie issue.  And the banks will take a small slice as a partial stealth bailout.

 

 

SJ

[KJP]

Can anyone speak to the risk (if any) banks are taking in with this influx of small business loans? BofA had 10k applications in the first hour.

 

 

They won't have any risk but they will earn a fee for processing / administering these programs.

 

In this environment this doesn't make sense, the optics are really bad.

 

What is the alternative?  Neither the Small Business Administration nor the Treasury have the administrative capacity to handle anything close to the expected number of loan applications. 

[rb]

Ok let me put it another way. Say that you are a small business owner and you have two options:

 

1. You can apply for your loan at the bank and pay a 3% fee and get your money right away

 

2. You can apply for your loan at the SBA, you pay no fee, and you get your money as fast as the SBA can give it to you but you don't know how fast that would be.

 

Which option do you choose?

[HJ]

Can anyone speak to the risk (if any) banks are taking in with this influx of small business loans? BofA had 10k applications in the first hour.

 

 

They won't have any risk but they will earn a fee for processing / administering these programs.

 

That's not entirely true.  It's true that they aren't supposed to take any credit risks.  But plenty of other things could go wrong.

JPM didn't think it was taking any credit risk either when taking over Bear Sterns, with Fed as a back stop on the assets they are buying, but then was hit with all the pre crisis mortgage underwriting issues that came back to haunt them.  Robo signing, mortgage put backs, fines related to pre crisis conducts, etc. 

 

The assumption here is the borrowers are all well intentioned.  But there's plenty of incentives to defraud the lenders/governments.  And 2 years down the road, some of these stories come to light, banks will be stuck in the middle, government won't reimburse them for frauds, and money is out the door.  How about at some point down the road, there's allegation of discrimination in disbursing the loans, money laundering, etc., etc.  That's why banks are all looking for guidelines.  They can't underwrite and monitor these loans to their traditional standard, yet they could be stuck with fines down the road.

[sleepydragon]

Maxine Water is just another corrupt politician. Why she is giving some much crap to WFC?

 

https://www.washingtonexaminer.com/opinion/rep-maxine-waters-family-continues-to-profit-directly-from-her-position-in-congress

 

[Castanza]

Can anyone speak to the risk (if any) banks are taking in with this influx of small business loans? BofA had 10k applications in the first hour.

 

 

They won't have any risk but they will earn a fee for processing / administering these programs.

 

That's not entirely true.  It's true that they aren't supposed to take any credit risks.  But plenty of other things could go wrong.

JPM didn't think it was taking any credit risk either when taking over Bear Sterns, with Fed as a back stop on the assets they are buying, but then was hit with all the pre crisis mortgage underwriting issues that came back to haunt them.  Robo signing, mortgage put backs, fines related to pre crisis conducts, etc. 

 

The assumption here is the borrowers are all well intentioned.  But there's plenty of incentives to defraud the lenders/governments.  And 2 years down the road, some of these stories come to light, banks will be stuck in the middle, government won't reimburse them for frauds, and money is out the door.  How about at some point down the road, there's allegation of discrimination in disbursing the loans, money laundering, etc., etc.  That's why banks are all looking for guidelines.  They can't underwrite and monitor these loans to their traditional standard, yet they could be stuck with fines down the road.

 

This is sort of what I was getting at when asking original question. How are banks vetting these small businesses and quantifying the risk? When I hear 10k applications in the first hour + government pressure to quickly underwrite these at all costs I can’t help but think that is a recipe for disaster down the road? Think about the types of businesses requesting these loans. If I had to put a number on how many of these companies will still go under even after receiving a loan I would say it has to be high. Everyone seems to be assuming that all these pizza shops and small clothing boutiques will pickup right where they left off. Well what happens when demand is slow to come back? Or we hit a second leg down in a year. Who do you think will be thrown under the bus? Banks or bleeding heart politicians?

 

I’m by no means an expert in anything banking. Quite frankly the industry is often put in the too hard pile. Just some thoughts from your average joe.

[rb]

I think that it's different this time around. The industry was quite predatory pre-gfc. They were really out trying to screw people. So a lot of the negatives that came out after were deserved to a large degree. Whatever fraud comes this time around will originate with the customers and the banks are there just sorta trying to help. I think that this is rather well understood so i don't think you'll see the same kind of backlash directed at banks.

[HJ]

I think that it's different this time around. The industry was quite predatory pre-gfc. They were really out trying to screw people. So a lot of the negatives that came out after were deserved to a large degree. Whatever fraud comes this time around will originate with the customers and the banks are there just sorta trying to help. I think that this is rather well understood so i don't think you'll see the same kind of backlash directed at banks.

 

Truth is always somewhere in between.  That all the frauds were committed by financial institutions during GFC because they were out to screw people, and this time they are out to help is just too simplistic a view of the world. 

 

When there's $350 billion at stake, and hundreds of thousands of people / entities involved, there will be bad actors.  At some point, there'll be opportunistic politicians rage in the name of "we the people" to raise his/her national profile on things that go wrong from the left and the right.  At that point the only thing the banks can hide behind is the guidelines on the origination / monitoring rules that they want government to put out now.  Even then, politicians can change goal post down the road if it suits their purpose. 

 

None of this is to predict this whole thing will necessarily be poorly executed this go around.  Just saying plenty of issues exists in this whole endeavor.  There are already people saying this is a give-away to the rich and connected, and they are right in some respects.  Such is the nature of human societies at large.

 

 

[Spekulatius]

I think that it's different this time around. The industry was quite predatory pre-gfc. They were really out trying to screw people. So a lot of the negatives that came out after were deserved to a large degree. Whatever fraud comes this time around will originate with the customers and the banks are there just sorta trying to help. I think that this is rather well understood so i don't think you'll see the same kind of backlash directed at banks.

 

Truth is always somewhere in between.  That all the frauds were committed by financial institutions during GFC because they were out to screw people, and this time they are out to help is just too simplistic a view of the world. 

 

When there's $350 billion at stake, and hundreds of thousands of people / entities involved, there will be bad actors.  At some point, there'll be opportunistic politicians rage in the name of "we the people" to raise his/her national profile on things that go wrong from the left and the right.  At that point the only thing the banks can hide behind is the guidelines on the origination / monitoring rules that they want government to put out now.  Even then, politicians can change goal post down the road if it suits their purpose. 

 

None of this is to predict this whole thing will necessarily be poorly executed this go around.  Just saying plenty of issues exists in this whole endeavor.  There are already people saying this is a give-away to the rich and connected, and they are right in some respects.  Such is the nature of human societies at large.

 

The big risk is not that banks are trying to screw their customer, with the new arrangement where they don’t partake in credit risk, their incentives is to approve everyone without due diligence, which lead to tax Payers taking losses. For now that’s fine, but when it’s over, there could be hell to pay if banks are grossly negligent now.

[Castanza]

I think that it's different this time around. The industry was quite predatory pre-gfc. They were really out trying to screw people. So a lot of the negatives that came out after were deserved to a large degree. Whatever fraud comes this time around will originate with the customers and the banks are there just sorta trying to help. I think that this is rather well understood so i don't think you'll see the same kind of backlash directed at banks.

 

Truth is always somewhere in between.  That all the frauds were committed by financial institutions during GFC because they were out to screw people, and this time they are out to help is just too simplistic a view of the world. 

 

When there's $350 billion at stake, and hundreds of thousands of people / entities involved, there will be bad actors.  At some point, there'll be opportunistic politicians rage in the name of "we the people" to raise his/her national profile on things that go wrong from the left and the right.  At that point the only thing the banks can hide behind is the guidelines on the origination / monitoring rules that they want government to put out now.  Even then, politicians can change goal post down the road if it suits their purpose. 

 

None of this is to predict this whole thing will necessarily be poorly executed this go around.  Just saying plenty of issues exists in this whole endeavor.  There are already people saying this is a give-away to the rich and connected, and they are right in some respects.  Such is the nature of human societies at large.

 

The big risk is not that banks are trying to screw their customer, with the new arrangement where they don’t partake in credit risk, their incentives is to approve everyone without due diligence, which lead to tax Payers taking losses. Mow that’s fine for. Now, but when it’s over, there could be hell to pay if banks are grossly negligent now.

 

Bingo. That 14B in fees sounds nice now. But pending how businesses do down the line it could put them in the crosshairs politically.

[gary17]

i can live on 7% dividend if that never gets cut...

[sleepydragon]

https://www.wsj.com/amp/articles/wells-fargo-curtails-jumbo-loans-amid-market-turmoil-11586037701

 

This seems pretty dumb?

So to get a mortgage, I got to open an account at WFC and keep 250k there? is this even legal? Are they asking for more trouble from regulators?

 

Or their mortgage customers will just go to BOA to refinance.

 

 

[plato1976]

wfc div is actually close to 8%

does anyone have an example that a stock with a 8% div didn't cut its dividend and the yield went down as stock price bounced back?

 

i can live on 7% dividend if that never gets cut...

[EliG]

wfc div is actually close to 8%

does anyone have an example that a stock with a 8% div didn't cut its dividend and the yield went down as stock price bounced back?

 

Bank of Montreal in Jan/Feb 2009. Yielded up to 11%, never cut the dividend.

[plato1976]

that's nice

so this one was well capitalized during the GFC?

 

wfc div is actually close to 8%

does anyone have an example that a stock with a 8% div didn't cut its dividend and the yield went down as stock price bounced back?

 

Bank of Montreal in Jan/Feb 2009. Yielded up to 11%, never cut the dividend.

[sundin]

Canadian banks raised capital and never cut the dividend during the GFC. IMO other companies should be similarly raising equity rather than relying on bailouts first.

 

https://www.theglobeandmail.com/report-on-business/td-rbc-scramble-to-raise-money/article17975195/

 

Both CDN and US banks are currently operating as the government intermediary to support liquidity in the all aspects of the economy. This time IS different on many levels. I believe WFC will get its asset cap lifted to support need for greater liquidity right now.

 

Prolonged low rates and a credit event to follow is the risk here. In the case of the latter, I imagine the government has no choice but to backstop them .

[Sullivcd]

Asset cap temporarily lifted

[CorpRaider]

I need a heroooooooooo.

[LC]

I need a heroooooooooo.

 

You called?