WFC - Wells Fargo

[mcliu]

Good move. Should have done it sooner, but this is the right thing to do.

[ERICOPOLY]

In return, will the bank reverse their recent move to restrict jumbo lending to customers with at least $250k of liquid assets at the bank?

 

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

[Williams406]

Asset cap temporarily lifted

 

Hopefully we don't hear SBA lending program applicants report that their loan was somehow established before they even applied, along with savings and checking accounts plus a HELOC.

[sleepydragon]

Seems the lift can only be used towards the SBA loans and all profits must be sent to treasury or none profit approved by treasury

[rb]

Seems the lift can only be used towards the SBA loans and all profits must be sent to treasury or none profit approved by treasury

Sure. because you can't obfuscate anything on a big bank's balance sheet.

[Rasputin]

The Fed is excluding PPP loans and Main Street Business Lending loans from asset cap calculation.  So at least the $10 B they have accepted for PPP will now be available for other things (like jumbos, they might not use it though)

 

https://www.federalreserve.gov/newsevents/pressreleases/files/enf20200408a1.pdf

 

Page 2

 

"Beginning on the effective date of this amendment for purposes of calculating the asset growth restriction in Paragraph 5(a), WFC may exclude any on balance sheet exposure resulting from loans made in connection with the Paycheck Protection Program established by the SBA pursuant to the CARES Act. Beginning on the date of the mutual agreement in writing described in paragraph (d)(2), for purposes of calculating the asset growth restriction in Paragraph 5(a), WFC may exclude any on balance sheet exposure resulting from loans made in connection with the Main Street Business Lending Program established by the Federal Reserve pursuant to section 13(3) of the Federal Reserve Act"

[gary17]

i am certainly happy to see bank shares going up

but i am not understanding what has changed between today and last week

  ????

 

Gary

[HalfMeasure]

i am certainly happy to see bank shares going up

but i am not understanding what has changed between today and last week

  ????

 

Gary

 

Liquidity, sentiment. As for fundamentals, we might get a glimpse next week!

[Castanza]

i am certainly happy to see bank shares going up

but i am not understanding what has changed between today and last week

  ????

 

Gary

 

Agreed, I bought some May 1st 35 strike calls yesterday for .20 and sold today for 1.40. The asset cap hasn’t changed much but I’ll gladly take some profits off “sentiment” in the near term.

[gary17]

i am certainly happy to see bank shares going up

but i am not understanding what has changed between today and last week

  ????

 

Gary

 

Liquidity, sentiment. As for fundamentals, we might get a glimpse next week!

 

Liquidity - like from the Fed?  but how does that benefit profitability 

 

i guess if bottom line is that dividend is not affected, we should celebrate

[sleepydragon]

i am certainly happy to see bank shares going up

but i am not understanding what has changed between today and last week

  ????

 

Gary

 

I think I read somewhere that Feds will buy all the small business loans from

Banks’s balance sheet so banks can keep making loans. Also Feds are buying more corporate loans and munis. Feds are all in, will do whatever it takes. And Banks are fully supported by Feds. Banks are doing more business with Feds put.

 

[rb]

My guess is that the "sentiment" is that they'll stuff the Fed with their shit loans for "liquidity".

[SHDL]

Yes the Fed just Made Banks Great Again. I did not know they were allowed to buy corporate/junk bonds/loans without authorization from Congress. Oh well, I must have missed the news.

[cmlber]

My guess is that the "sentiment" is that they'll stuff the Fed with their shit loans for "liquidity".

 

Doesn't the Fed lending essentially unlimited amounts of money to small & medium sized businesses take mass defaults off the table?  Or at least make it MUCH less likely? 

[rb]

My guess is that the "sentiment" is that they'll stuff the Fed with their shit loans for "liquidity".

 

Doesn't the Fed lending essentially unlimited amounts of money to small & medium sized businesses take mass defaults off the table?  Or at least make it MUCH less likely?

The Fed isn't really lending. You and I can't go to the Fed, knock on the window and get a loan. The banks are doing the lending and the fed is buying these securities from the banks. It's like a drunk trader that called his counterparties and said I'll buy anything you want to sell me at par, no limits, no questions asked.

 

Now, if you were a bank which ones would you sell the Fed?

[Viking]

Looks like we are getting QE on steroids. In the last decade every time we got QE we got a stock market bounce. The Fed rides to the rescue of financial markets (again) :-)

 

The economic news continues to be grim. As Yellin recently said, how long the lock down lasts is the key. The longer the greater the severity and length of the recession.

 

And the length of the lock down will be determined by the virus. I think Powell suggested July as a realistic target to reversing the lock down in place.

[KJP]

i am certainly happy to see bank shares going up

but i am not understanding what has changed between today and last week

  ????

 

Gary

 

If Wells had an asset cap issue, it might be constrained from making new loans, which could alienate existing clients and prevent forming new client relationships.  And even if they have room under their asset cap, new loans right now might have alot of credit risk. 

 

So, what changed?  Well, if I understand it correctly, the new Fed facilities will allow Wells to make more loans than it otherwise would have made (thereby preserving and growing relationships) and perhaps allow Wells to increase its non-interest income above what it would have been.  For example, take the "Main Street New Loan Facility."  Wells can make a qualifying loan and sell 95% of it to the newly created Fed SPV.  They have to pay 100 bps facility fee to do that, but they may require the borrower pay that fee.  In addition, borrowers must pay Wells a 100 bps origination fee, and the SPV will pay Wells a 25bps per year for servicing the loan. 

 

Here's an example, as I understand it, of what sample transaction might look like:  Wells loans eligible borrower $10 million, and immediately earns an origination fee of $100,000.  It then immediately sells $9.5 million of that loan to the SPV, and makes the borrower pay the $95,000 fee associated with that.  So, it's now got only $500,000 of the loan on its balance sheet, and I assume that is all that will count towards its cap.  That $500,000 is also not first loss -- it's pari passu with the SPV.  In this scenario, Wells has already earned $100,000 in fees on just $500,000 of capital, though that return is dependent on the borrower, rather than Wells, paying the SPV facility fee.

 

And as others have said, Wells gets to choose which loans to sell to the various Fed SPVs.  As others have suggested, I assume the credit risks associated with the sold loans won't be the same as the credit risk of the loans it keeps.

[DooDiligence]

Something tells me this isn't going to turn out well in the long run.

[sleepydragon]

i am certainly happy to see bank shares going up

but i am not understanding what has changed between today and last week

  ????

 

Gary

 

If Wells had an asset cap issue, it might be constrained from making new loans, which could alienate existing clients and prevent forming new client relationships.  And even if they have room under their asset cap, new loans right now might have alot of credit risk. 

 

So, what changed?  Well, if I understand it correctly, the new Fed facilities will allow Wells to make more loans than it otherwise would have made (thereby preserving and growing relationships) and perhaps allow Wells to increase its non-interest income above what it would have been.  For example, take the "Main Street New Loan Facility."  Wells can make a qualifying loan and sell 95% of it to the newly created Fed SPV.  They have to pay 100 bps facility fee to do that, but they may require the borrower pay that fee.  In addition, borrowers must pay Wells a 100 bps origination fee, and the SPV will pay Wells a 25bps per year for servicing the loan. 

 

Here's an example, as I understand it, of what sample transaction might look like:  Wells loans eligible borrower $10 million, and immediately earns an origination fee of $100,000.  It then immediately sells $9.5 million of that loan to the SPV, and makes the borrower pay the $95,000 fee associated with that.  So, it's now got only $500,000 of the loan on its balance sheet, and I assume that is all that will count towards its cap.  That $500,000 is also not first loss -- it's pari passu with the SPV.  In this scenario, Wells has already earned $100,000 in fees on just $500,000 of capital, though that return is dependent on the borrower, rather than Wells, paying the SPV facility fee.

 

And as others have said, Wells gets to choose which loans to sell to the various Fed SPVs.  As others have suggested, I assume the credit risks associated with the sold loans won't be the same as the credit risk of the loans it keeps.

 

But Wells is required to give Feds all the profits from making these loans.

 

[KJP]

i am certainly happy to see bank shares going up

but i am not understanding what has changed between today and last week

  ????

 

Gary

 

If Wells had an asset cap issue, it might be constrained from making new loans, which could alienate existing clients and prevent forming new client relationships.  And even if they have room under their asset cap, new loans right now might have alot of credit risk. 

 

So, what changed?  Well, if I understand it correctly, the new Fed facilities will allow Wells to make more loans than it otherwise would have made (thereby preserving and growing relationships) and perhaps allow Wells to increase its non-interest income above what it would have been.  For example, take the "Main Street New Loan Facility."  Wells can make a qualifying loan and sell 95% of it to the newly created Fed SPV.  They have to pay 100 bps facility fee to do that, but they may require the borrower pay that fee.  In addition, borrowers must pay Wells a 100 bps origination fee, and the SPV will pay Wells a 25bps per year for servicing the loan. 

 

Here's an example, as I understand it, of what sample transaction might look like:  Wells loans eligible borrower $10 million, and immediately earns an origination fee of $100,000.  It then immediately sells $9.5 million of that loan to the SPV, and makes the borrower pay the $95,000 fee associated with that.  So, it's now got only $500,000 of the loan on its balance sheet, and I assume that is all that will count towards its cap.  That $500,000 is also not first loss -- it's pari passu with the SPV.  In this scenario, Wells has already earned $100,000 in fees on just $500,000 of capital, though that return is dependent on the borrower, rather than Wells, paying the SPV facility fee.

 

And as others have said, Wells gets to choose which loans to sell to the various Fed SPVs.  As others have suggested, I assume the credit risks associated with the sold loans won't be the same as the credit risk of the loans it keeps.

 

But Wells is required to give Feds all the profits from making these loans.

 

That applies to the Paycheck Protection Loans issued under Title I of CARES.  Does it apply to the use of the Fed facilities?

[Cigarbutt]

Something tells me this isn't going to turn out well in the long run.

As per a soon to be announced Fed regulation, you will be forbidden to use the word run in a bank thread. :)

[ERICOPOLY]

But Wells is required to give Feds all the profits from making these loans.

 

I wonder if by stripping away incentives for the bank, it leads to the bank not wanting to make the loan:

 

It’s not clear, however, how much of that $118 billion has actually made its way to businesses, which have complained of a chaotic application process as banks either didn’t take applications or restricted them to only certain existing customers.

 

https://www.yahoo.com/huffpost/coronavirus-paycheck-protection-program-151123296.html

[DooDiligence]

Something tells me this isn't going to turn out well in the long run.

As per a soon to be announced Fed regulation, you will be forbidden to use the word run in a bank thread. :)

 

Nice  ;)

[UK]

https://seekingalpha.com/news/3561155-biggest-u-s-banks-should-raise-200b-in-capital-kashkari

[CorpRaider]

I could go for some discounted scrip dividends like $BMO.