Rasputin Posted April 16, 2020 Share Posted April 16, 2020 https://www.wsj.com/articles/transcript-feds-neel-kashkari-on-breaking-up-banks-and-monetary-policy-1455747231 Fed’s Kashkari: 25% Capital Requirement May Be Right for Banks MR. KASHKARI: I don’t have a number in my head. I’ve seen some proposals for a 25% capital requirement. So leverage ratios, effectively, just to keep it simple, you know, 4:1. You know, I think that’s a place we could discuss. I don’t have that – I don’t have a magic number yet. And also, importantly, we’re not suggesting that we at the Minneapolis Fed necessarily have all the answers. What we’re trying to do is launch a process where we can bring all of these ideas out from across the country and give them the serious analysis and consideration that I feel like they deserve. He's crazy, he wants 25% Tier 1 leverage ratio or SLR? LOL...this interview from feb 2016, seems like everytime banks stocks are down, he wants them to dilute :) Link to comment Share on other sites More sharing options...
KJP Posted April 16, 2020 Share Posted April 16, 2020 https://www.wsj.com/articles/transcript-feds-neel-kashkari-on-breaking-up-banks-and-monetary-policy-1455747231 Fed’s Kashkari: 25% Capital Requirement May Be Right for Banks MR. KASHKARI: I don’t have a number in my head. I’ve seen some proposals for a 25% capital requirement. So leverage ratios, effectively, just to keep it simple, you know, 4:1. You know, I think that’s a place we could discuss. I don’t have that – I don’t have a magic number yet. And also, importantly, we’re not suggesting that we at the Minneapolis Fed necessarily have all the answers. What we’re trying to do is launch a process where we can bring all of these ideas out from across the country and give them the serious analysis and consideration that I feel like they deserve. He's crazy, he wants 25% Tier 1 leverage ratio or SLR? LOL...this interview from feb 2016, seems like everytime banks stocks are down, he wants them to dilute :) If you're levered at only 4:1, what does your return on assets need to be to justify investing capital in the business and how does that compare to current large bank RoA? How would the banking business change to double RoA? Link to comment Share on other sites More sharing options...
StubbleJumper Posted April 16, 2020 Share Posted April 16, 2020 https://www.wsj.com/articles/transcript-feds-neel-kashkari-on-breaking-up-banks-and-monetary-policy-1455747231 Fed’s Kashkari: 25% Capital Requirement May Be Right for Banks MR. KASHKARI: I don’t have a number in my head. I’ve seen some proposals for a 25% capital requirement. So leverage ratios, effectively, just to keep it simple, you know, 4:1. You know, I think that’s a place we could discuss. I don’t have that – I don’t have a magic number yet. And also, importantly, we’re not suggesting that we at the Minneapolis Fed necessarily have all the answers. What we’re trying to do is launch a process where we can bring all of these ideas out from across the country and give them the serious analysis and consideration that I feel like they deserve. He's crazy, he wants 25% Tier 1 leverage ratio or SLR? LOL...this interview from feb 2016, seems like everytime banks stocks are down, he wants them to dilute :) If you're levered at only 4:1, what does your return on assets need to be to justify investing capital in the business and how does that compare to current large bank RoA? How would the banking business change to double RoA? No big deal, you just need a NIM of 8% if you have little leverage! So, that would be roughly a 9% mortgage rate, a 13% car loan rate and 30% for credit cards? Consumers won't mind that, will they? SJ Link to comment Share on other sites More sharing options...
Spekulatius Posted April 16, 2020 Share Posted April 16, 2020 FED will be cutting out the middleman and lend directly. Nobody can beat their cost of capital. Problem solved. In a way, that’s already happening right now. Link to comment Share on other sites More sharing options...
rb Posted April 16, 2020 Share Posted April 16, 2020 FED will be cutting out the middleman and lend directly. Nobody can beat their cost of capital. Problem solved. In a way, that’s already happening right now. We could have nationalized banks in 2008. Why did we wait so long? Link to comment Share on other sites More sharing options...
sleepydragon Posted April 16, 2020 Share Posted April 16, 2020 https://www.wsj.com/articles/transcript-feds-neel-kashkari-on-breaking-up-banks-and-monetary-policy-1455747231 Fed’s Kashkari: 25% Capital Requirement May Be Right for Banks MR. KASHKARI: I don’t have a number in my head. I’ve seen some proposals for a 25% capital requirement. So leverage ratios, effectively, just to keep it simple, you know, 4:1. You know, I think that’s a place we could discuss. I don’t have that – I don’t have a magic number yet. And also, importantly, we’re not suggesting that we at the Minneapolis Fed necessarily have all the answers. What we’re trying to do is launch a process where we can bring all of these ideas out from across the country and give them the serious analysis and consideration that I feel like they deserve. He's crazy, he wants 25% Tier 1 leverage ratio or SLR? LOL...this interview from feb 2016, seems like everytime banks stocks are down, he wants them to dilute :) What an idiot. Why doesn't he propose everyone shall buy house with no mortgage. Link to comment Share on other sites More sharing options...
CorpRaider Posted April 16, 2020 Share Posted April 16, 2020 https://www.wsj.com/articles/transcript-feds-neel-kashkari-on-breaking-up-banks-and-monetary-policy-1455747231 Fed’s Kashkari: 25% Capital Requirement May Be Right for Banks MR. KASHKARI: I don’t have a number in my head. I’ve seen some proposals for a 25% capital requirement. So leverage ratios, effectively, just to keep it simple, you know, 4:1. You know, I think that’s a place we could discuss. I don’t have that – I don’t have a magic number yet. And also, importantly, we’re not suggesting that we at the Minneapolis Fed necessarily have all the answers. What we’re trying to do is launch a process where we can bring all of these ideas out from across the country and give them the serious analysis and consideration that I feel like they deserve. He's crazy, he wants 25% Tier 1 leverage ratio or SLR? LOL...this interview from feb 2016, seems like everytime banks stocks are down, he wants them to dilute :) What an idiot. Why doesn't he propose everyone shall buy house with no mortgage. Yeah, I thought he was just an ideologue trying to score some political points by asking them to suspend dividends, but man that statement is pretty, pretty dumb. Fed out here doing everything it can to increase liquidity and he wants to shrink the money supply by >50% Link to comment Share on other sites More sharing options...
jwelborn93 Posted April 16, 2020 Share Posted April 16, 2020 How are folks thinking about expected go-forward return for WFC right now? It hards to quantify how much the market is punishing banks right now from (a) expected credit losses from crisis vs. (b) expected decline in normalized earnings power due to lower rate environment. It feels like shares are cheap but hard to pinpoint intrinsic value. I'm of the view that banks are well capitalized to weather this storm and that the market is over anchoring bank performance on prior crisis but having trouble producing quantitative support. I have a 4% position in WFC common and am weighing repositioning half my ownership into 2022 LEAPS. Link to comment Share on other sites More sharing options...
LC Posted April 16, 2020 Share Posted April 16, 2020 Another reason to consider some LEAPs is if you expect a dividend cut. Link to comment Share on other sites More sharing options...
BRK7 Posted April 16, 2020 Share Posted April 16, 2020 Another reason to consider some LEAPs is if you expect a dividend cut. Interesting. So, if you are long a LEAP call, you don't get the dividend paid to you, regardless. As a LEAP call holder, how does this work to your benefit in the event of a dividend cut? Link to comment Share on other sites More sharing options...
johnny Posted April 16, 2020 Share Posted April 16, 2020 cash not paid in dividends remains on the balance sheet, makes book value higher Link to comment Share on other sites More sharing options...
BRK7 Posted April 16, 2020 Share Posted April 16, 2020 cash not paid in dividends remains on the balance sheet, makes book value higher True, but if the dividend gets cut, I'd say there's a good chance the market price of the stock gets hit (due to perception of liquidity issues), in which case you'd get a leveraged decline in the market price of the LEAP. Depending on your planned investment time horizon, this could be a significant issue. Link to comment Share on other sites More sharing options...
LC Posted April 16, 2020 Share Posted April 16, 2020 cash not paid in dividends remains on the balance sheet, makes book value higher True, but if the dividend gets cut, I'd say there's a good chance the market price of the stock gets hit (due to perception of liquidity issues), in which case you'd get a leveraged decline in the market price of the LEAP. Depending on your planned investment time horizon, this could be a significant issue. Yes that is true. But if the dividend doesn't get cut, your balance sheet shrinks as mentioned. The choice is whether you want to be exposed to market fluctuation (market price reaction to dividend cut) or balance sheet fluctuation. For me I think I will hold the stock until the dividend is cut (if that does happen); and then switch to LEAPs. Link to comment Share on other sites More sharing options...
patterson Posted April 16, 2020 Share Posted April 16, 2020 Hi, I'll share my (very unsophisticated) rationale for buying WFC 2022 leaps, for what it's worth. I don't have much experience with options, but I'm willing to bet at least a small percentage of my portfolio that WFC trading below tangible book value is temporary and unlikely to persist two years into the future. I picked up some more contracts today at 5.50 for a strike price of 27.50, setting my breakeven price near WFC's current tangible book of 32.90. I'm doing so in lieu of picking up more shares, as this allows me to hang onto my cash. Link to comment Share on other sites More sharing options...
jwelborn93 Posted April 16, 2020 Share Posted April 16, 2020 Thanks Patterson. Link to comment Share on other sites More sharing options...
lnofeisone Posted April 16, 2020 Share Posted April 16, 2020 Hi, I'll share my (very unsophisticated) rationale for buying WFC 2022 leaps, for what it's worth. I don't have much experience with options, but I'm willing to bet at least a small percentage of my portfolio that WFC trading below tangible book value is temporary and unlikely to persist two years into the future. I picked up some more contracts today at 5.50 for a strike price of 27.50, setting my breakeven price near WFC's current tangible book of 32.90. I'm doing so in lieu of picking up more shares, as this allows me to hang onto my cash. Aren't you better off buying 27.5/32.5 bull spread for 1.75? If WFC climbs over 32.5, you basically 3x your $. For naked leaps to 3x that number would be 42.5. Link to comment Share on other sites More sharing options...
RichardGibbons Posted April 17, 2020 Share Posted April 17, 2020 Hi, I'll share my (very unsophisticated) rationale for buying WFC 2022 leaps, for what it's worth. I don't have much experience with options, but I'm willing to bet at least a small percentage of my portfolio that WFC trading below tangible book value is temporary and unlikely to persist two years into the future. I picked up some more contracts today at 5.50 for a strike price of 27.50, setting my breakeven price near WFC's current tangible book of 32.90. I'm doing so in lieu of picking up more shares, as this allows me to hang onto my cash. Aren't you better off buying 27.5/32.5 bull spread for 1.75? If WFC climbs over 32.5, you basically 3x your $. For naked leaps to 3x that number would be 42.5. I think this also depends on if you want to close early--pretty important for LEAPs. With the bull spread, if you want to close early, the friction due to the bid/ask spread is more significant, and it's pretty hard to get the 3x much before the options expire. With the straight leaps, there's the possibility of closing the position for 3x in a year if the stock should move up in to the low 40s rather than waiting two years. Like, right now, there's such volatility that WFC could actually be in the low 40s by this summer. (Not likely, but possible.) What do you do then, if you have the spread? Link to comment Share on other sites More sharing options...
lnofeisone Posted April 17, 2020 Share Posted April 17, 2020 Hi, I'll share my (very unsophisticated) rationale for buying WFC 2022 leaps, for what it's worth. I don't have much experience with options, but I'm willing to bet at least a small percentage of my portfolio that WFC trading below tangible book value is temporary and unlikely to persist two years into the future. I picked up some more contracts today at 5.50 for a strike price of 27.50, setting my breakeven price near WFC's current tangible book of 32.90. I'm doing so in lieu of picking up more shares, as this allows me to hang onto my cash. Aren't you better off buying 27.5/32.5 bull spread for 1.75? If WFC climbs over 32.5, you basically 3x your $. For naked leaps to 3x that number would be 42.5. I think this also depends on if you want to close early--pretty important for LEAPs. With the bull spread, if you want to close early, the friction due to the bid/ask spread is more significant, and it's pretty hard to get the 3x much before the options expire. With the straight leaps, there's the possibility of closing the position for 3x in a year if the stock should move up in to the low 40s rather than waiting two years. Like, right now, there's such volatility that WFC could actually be in the low 40s by this summer. (Not likely, but possible.) What do you do then, if you have the spread? I see your point on being able to close the spread at spread value. I'd argue that at low 40s, 32.5 call is pretty deep in the money so it will be close enough. I'd worry that with a LEAP you are either vol-neutral or vol-long while with a bull spread where lower leg is 27.5 (when the stock is around 27.5) you are shorting volatility. If WFC goes to low 40s, vol on 27.5 and 32.5 will be much closer than it is today. Link to comment Share on other sites More sharing options...
sleepydragon Posted April 17, 2020 Share Posted April 17, 2020 Too many things could go wrong using options - vol, interest rate, dividends, time decay, spread, etc.. Spread just have more leverage compared to just call, and It limits your vol exposure but but delta exposure will dominate your pnl. My point is: i will just long the stock if you think the stock will go up. You can wait forever and never have to sell if you long the stock. And if you don’t lose money compounding effect will make one rich a little later. Link to comment Share on other sites More sharing options...
fareastwarriors Posted April 17, 2020 Share Posted April 17, 2020 Reaffirming Our Call on U.S. Banks: We Think They're Ready This Time After an in-depth reassessment, we still believe they're undervalued. https://www.morningstar.com/articles/977722/reaffirming-our-call-on-us-banks-we-think-theyre-ready-this-time :-X Link to comment Share on other sites More sharing options...
mcliu Posted April 17, 2020 Share Posted April 17, 2020 What is up with M* and their "analysts" with like 3 yrs of experience? Especially for an industry as complex as banking.. Link to comment Share on other sites More sharing options...
undervalued Posted April 17, 2020 Share Posted April 17, 2020 What is up with M* and their "analysts" with like 3 yrs of experience? Especially for an industry as complex as banking.. For most inventors, that's enough since they only hold it short term? :P Link to comment Share on other sites More sharing options...
fareastwarriors Posted April 17, 2020 Share Posted April 17, 2020 What is up with M* and their "analysts" with like 3 yrs of experience? Especially for an industry as complex as banking.. If you are a great analyst, why work at M*? Link to comment Share on other sites More sharing options...
DollarKing Posted April 21, 2020 Share Posted April 21, 2020 Munger hasn't sold any WFC in the DJCO portfolio upto 31st March 2020 from latest 13F (or BAC, USB) FWIW Link to comment Share on other sites More sharing options...
wescobrk Posted April 21, 2020 Share Posted April 21, 2020 Munger hasn't sold any WFC in the DJCO portfolio upto 31st March 2020 from latest 13F (or BAC, USB) FWIW His waiting until the day before the market bottomed (March 2009) is probably the greatest display of patience I've ever seen. It looks like he will "miss" this one. If he was still in his Munger, Wheeler LP days, you would think he would have put on a hedge or have taken some profits long ago. Link to comment Share on other sites More sharing options...
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