WFC - Wells Fargo

[fareastwarriors]

‘Big Short’ Steve Eisman likes the big US banks after coronavirus sell-off

 

https://www.cnbc.com/2020/04/23/big-short-steve-eisman-likes-the-big-us-banks-after-coronavirus-sell-off.html

[patterson]

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.

 

I ended up selling these because I have a large position in WFC common and am worried about near-term downside, being stuck without enough cash. I still think the leaps are a good deal though.

[changegonnacome]

as this drifts lower (along with other banks) - does WFC have a relative advantage over the other Big 3 banks..........I've seen some people talk about COVID19 putting a discount on a discount when it comes to post-scandal Wells

 

New CEO is highly rated not withstanding the 'new Jamie Dimon' BS.......knows technology and Wells obviously needs a lot more tech and a lot less people......should be some levers to pull in this space for him over the coming years + Asset Cap will get lifted one day

 

Interested in any thoughts on why in a number of years why WFC wouldn't close the P/TBV gap with BAC & JPM........giving it a superior 3-5 year upside?

[gfp]

Mortgage servicers are just getting killed in this environment.  Isn't wells the largest mortgage servicer in the country?  Could have a lot to do with share weakness.  I don't think fear of huge credit losses squares with the recovery in equity index prices, but perhaps we have seen the end of the recovery in equity prices.

[Viking]

One metric i am considering when looking at WFC, BAC and JPM is who has the best technology platforms in the various business lines. One impact of the virus is everything is moving even more online/mobile so it makes sense to me that the companies with the best online/mobile capabilities will be able to grow share moving forward. Covid will accelerate the seclar trend to online and magnify the opportunity for the leaders. And once people are locked into your ecosystem you likely have them for life (if you are a leader).

 

This also should provide a long runway to continue to lower costs in the medium term (I expect the big banks will be shrinking branches and head count later in the year as the economy continues to struggle). Looking out a couple of years there is lots to like about the big banks. Scale matters more than ever.

 

Who are the ‘Google/Microsoft/Facebook‘ equivalents in banking today?

 

My concern with WFC is they seem to be a couple of years behind BAC and JPM in terms of their transition to the new electronic/online/mobile world. And the issues with the Fed have been slowing their response. Covid will slow things further. So my gut tells me to go with BAC and JPM (likely lower risk but with lower upside).

 

WFC’s expenses are so bloated right now (way too many branches/employees)... but what is their path moving forward? BAC and JPM have been bringing expenses down in a stealth way (reductions being offset by expansions into new cities) and when the economy was strong (so politicians did not care). If WFC tries to aggressively lower expenses right now it will get them crucified by politicians.

 

PS: is i just me or does it look like a few of Buffetts large legacy holdings are slow to embrace technology/pivot to the new world? WFC vs BAC/JPM? Geico vs Progressive? Burlington Northern? Others?

[Castanza]

One metric i am considering when looking at WFC, BAC and JPM is who has the best technology platforms in the various business lines. One impact of the virus is everything is moving even more online/mobile so it makes sense to me that the companies with the best online/mobile capabilities will be able to grow share moving forward. Covid will accelerate the seclar trend to online and magnify the opportunity for the leaders. And once people are locked into your ecosystem you likely have them for life (if you are a leader).

 

This also should provide a long runway to continue to lower costs in the medium term (I expect the big banks will be shrinking branches and head count later in the year as the economy continues to struggle). Looking out a couple of years there is lots to like about the big banks. Scale matters more than ever.

 

Who are the ‘Google/Microsoft/Facebook‘ equivalents in banking today?

 

My concern with WFC is they seem to be a couple of years behind BAC and JPM in terms of their transition to the new electronic/online/mobile world. And the issues with the Fed have been slowing their response. Covid will slow things further. So my gut tells me to go with BAC and JPM (likely lower risk but with lower upside).

 

WFC’s expenses are so bloated right now (way too many branches/employees)... but what is their path moving forward? BAC and JPM have been bringing expenses down in a stealth way (reductions being offset by expansions into new cities) and when the economy was strong (so politicians did not care). If WFC tries to aggressively lower expenses right now it will get them crucified by politicians.

 

PS: is i just me or does it look like a few of Buffetts large legacy holdings are slow to embrace technology/pivot to the new world? WFC vs BAC/JPM? Geico vs Progressive? Burlington Northern? Others?

 

I don’t work with enterprise finance stuff, but I can’t imagine it being so difficult that it takes more than a year to roll out a fluid efficient tech stack. I mean what exactly are JPM and others doing that WFC can’t? It’s banking....not VR, AI. I’ve been apart of enough enterprise projects dealing with top secret security standards, HIPAA, and finance data to know it can’t be that difficult.

 

Anyone with experience in this sector?

[Spekulatius]

One metric i am considering when looking at WFC, BAC and JPM is who has the best technology platforms in the various business lines. One impact of the virus is everything is moving even more online/mobile so it makes sense to me that the companies with the best online/mobile capabilities will be able to grow share moving forward. Covid will accelerate the seclar trend to online and magnify the opportunity for the leaders. And once people are locked into your ecosystem you likely have them for life (if you are a leader).

 

This also should provide a long runway to continue to lower costs in the medium term (I expect the big banks will be shrinking branches and head count later in the year as the economy continues to struggle). Looking out a couple of years there is lots to like about the big banks. Scale matters more than ever.

 

Who are the ‘Google/Microsoft/Facebook‘ equivalents in banking today?

 

My concern with WFC is they seem to be a couple of years behind BAC and JPM in terms of their transition to the new electronic/online/mobile world. And the issues with the Fed have been slowing their response. Covid will slow things further. So my gut tells me to go with BAC and JPM (likely lower risk but with lower upside).

 

WFC’s expenses are so bloated right now (way too many branches/employees)... but what is their path moving forward? BAC and JPM have been bringing expenses down in a stealth way (reductions being offset by expansions into new cities) and when the economy was strong (so politicians did not care). If WFC tries to aggressively lower expenses right now it will get them crucified by politicians.

 

PS: is i just me or does it look like a few of Buffetts large legacy holdings are slow to embrace technology/pivot to the new world? WFC vs BAC/JPM? Geico vs Progressive? Burlington Northern? Others?

This COVID-19 pandemic is just like an accelerant for digital transformation. It givr

One metric i am considering when looking at WFC, BAC and JPM is who has the best technology platforms in the various business lines. One impact of the virus is everything is moving even more online/mobile so it makes sense to me that the companies with the best online/mobile capabilities will be able to grow share moving forward. Covid will accelerate the seclar trend to online and magnify the opportunity for the leaders. And once people are locked into your ecosystem you likely have them for life (if you are a leader).

 

This also should provide a long runway to continue to lower costs in the medium term (I expect the big banks will be shrinking branches and head count later in the year as the economy continues to struggle). Looking out a couple of years there is lots to like about the big banks. Scale matters more than ever.

 

Who are the ‘Google/Microsoft/Facebook‘ equivalents in banking today?

 

My concern with WFC is they seem to be a couple of years behind BAC and JPM in terms of their transition to the new electronic/online/mobile world. And the issues with the Fed have been slowing their response. Covid will slow things further. So my gut tells me to go with BAC and JPM (likely lower risk but with lower upside).

 

WFC’s expenses are so bloated right now (way too many branches/employees)... but what is their path moving forward? BAC and JPM have been bringing expenses down in a stealth way (reductions being offset by expansions into new cities) and when the economy was strong (so politicians did not care). If WFC tries to aggressively lower expenses right now it will get them crucified by politicians.

 

PS: is i just me or does it look like a few of Buffetts large legacy holdings are slow to embrace technology/pivot to the new world? WFC vs BAC/JPM? Geico vs Progressive? Burlington Northern? Others?

 

I don’t work with enterprise finance stuff, but I can’t imagine it being so difficult that it takes more than a year to roll out a fluid efficient tech stack. I mean what exactly are JPM and others doing that WFC can’t? It’s banking....not VR, AI. I’ve been apart of enough enterprise projects dealing with top secret security standards, HIPAA, and finance data to know it can’t be that difficult.

 

Anyone with experience in this sector?

 

It is definitely true that  WFC is behind VAC and JPM. I used to be customer with BAC years back and their online banking was the best. WFC really hasn’t upgraded their experience for years, at least not the front end. It was really stale when ai left them last year (I was customer since 2005). WFC biggest advantage was their branches, they were well run, at least in CA. But people go less and less to branches now and with COVID-19, the branches are almost useless, except the ATM in front of them.

 

I think BAC and JPM are ahead with digital transformation and WFC is behind and in times of crisis, it’s very hard to catch up. As an investment I think JPM and BAC are better bets in my opinion.

 

I bought a little JPM today. I sold my WFC last year for pretty much twice the price it is going today.

[Viking]

One metric i am considering when looking at WFC, BAC and JPM is who has the best technology platforms in the various business lines. One impact of the virus is everything is moving even more online/mobile so it makes sense to me that the companies with the best online/mobile capabilities will be able to grow share moving forward. Covid will accelerate the seclar trend to online and magnify the opportunity for the leaders. And once people are locked into your ecosystem you likely have them for life (if you are a leader).

 

This also should provide a long runway to continue to lower costs in the medium term (I expect the big banks will be shrinking branches and head count later in the year as the economy continues to struggle). Looking out a couple of years there is lots to like about the big banks. Scale matters more than ever.

 

Who are the ‘Google/Microsoft/Facebook‘ equivalents in banking today?

 

My concern with WFC is they seem to be a couple of years behind BAC and JPM in terms of their transition to the new electronic/online/mobile world. And the issues with the Fed have been slowing their response. Covid will slow things further. So my gut tells me to go with BAC and JPM (likely lower risk but with lower upside).

 

WFC’s expenses are so bloated right now (way too many branches/employees)... but what is their path moving forward? BAC and JPM have been bringing expenses down in a stealth way (reductions being offset by expansions into new cities) and when the economy was strong (so politicians did not care). If WFC tries to aggressively lower expenses right now it will get them crucified by politicians.

 

PS: is i just me or does it look like a few of Buffetts large legacy holdings are slow to embrace technology/pivot to the new world? WFC vs BAC/JPM? Geico vs Progressive? Burlington Northern? Others?

 

I don’t work with enterprise finance stuff, but I can’t imagine it being so difficult that it takes more than a year to roll out a fluid efficient tech stack. I mean what exactly are JPM and others doing that WFC can’t? It’s banking....not VR, AI. I’ve been apart of enough enterprise projects dealing with top secret security standards, HIPAA, and finance data to know it can’t be that difficult.

 

Anyone with experience in this sector?

 

If it is fairly easy and can be done relatively quickly why is WFC (apparently) so far behind?

 

Saputo in Canada has been trying to migrate its worldwide food operations to a new system (order entry, warehousing and delivery) and it looks to me like it has been an abject failure (taking years longer to execute in the various countries, costing hundreds of millions more than budgeted and causing issues with customers). Saputo underinvested in tech for years (which likely boosted profits in the short term).

[LC]

In exactly what area is WFC "so far behind"?

 

What systems don't they have? What talent do they not have access to?

 

It's my impression that all the large banks (1) know what each other is doing in almost all things (2) have similar access to the same consultants and talent pool, and (3) have all seen digital trends coming a decade ago.

 

I just don't know what JPM is doing so differently from WFC?

 

It's also my impression that how the bank stocks trade is mostly related to the market's perception of its asset pool and major lines of business. WFC has a large consumer secured business in vulnerable geographies.

[Castanza]

One metric i am considering when looking at WFC, BAC and JPM is who has the best technology platforms in the various business lines. One impact of the virus is everything is moving even more online/mobile so it makes sense to me that the companies with the best online/mobile capabilities will be able to grow share moving forward. Covid will accelerate the seclar trend to online and magnify the opportunity for the leaders. And once people are locked into your ecosystem you likely have them for life (if you are a leader).

 

This also should provide a long runway to continue to lower costs in the medium term (I expect the big banks will be shrinking branches and head count later in the year as the economy continues to struggle). Looking out a couple of years there is lots to like about the big banks. Scale matters more than ever.

 

Who are the ‘Google/Microsoft/Facebook‘ equivalents in banking today?

 

My concern with WFC is they seem to be a couple of years behind BAC and JPM in terms of their transition to the new electronic/online/mobile world. And the issues with the Fed have been slowing their response. Covid will slow things further. So my gut tells me to go with BAC and JPM (likely lower risk but with lower upside).

 

WFC’s expenses are so bloated right now (way too many branches/employees)... but what is their path moving forward? BAC and JPM have been bringing expenses down in a stealth way (reductions being offset by expansions into new cities) and when the economy was strong (so politicians did not care). If WFC tries to aggressively lower expenses right now it will get them crucified by politicians.

 

PS: is i just me or does it look like a few of Buffetts large legacy holdings are slow to embrace technology/pivot to the new world? WFC vs BAC/JPM? Geico vs Progressive? Burlington Northern? Others?

 

I don’t work with enterprise finance stuff, but I can’t imagine it being so difficult that it takes more than a year to roll out a fluid efficient tech stack. I mean what exactly are JPM and others doing that WFC can’t? It’s banking....not VR, AI. I’ve been apart of enough enterprise projects dealing with top secret security standards, HIPAA, and finance data to know it can’t be that difficult.

 

Anyone with experience in this sector?

 

If it is fairly easy and can be done relatively quickly why is WFC (apparently) so far behind?

 

Saputo in Canada has been trying to migrate its worldwide food operations to a new system (order entry, warehousing and delivery) and it looks to me like it has been an abject failure (taking years longer to execute in the various countries, costing hundreds of millions more than budgeted and causing issues with customers). Saputo underinvested in tech for years (which likely boosted profits in the short term).

 

Yeah but that deals with physical goods, logistics integration, all types of peripheral devices. That’s  a whole different ball game. I’ve helped to roll out a few supply chain systems and they can be a real pita. Banking is essentially just moving numbers. Again, I don’t know for sure. If I had to guess the pipes and backend are probably pretty complex. Especially being that the latency with transactions need to be flawless. I have a friend who works for BAC so maybe I’ll pick his brain a bit.

[Castanza]

In exactly what area is WFC "so far behind"?

 

What systems don't they have? What talent do they not have access to?

 

It's my impression that all the large banks (1) know what each other is doing in almost all things (2) have similar access to the same consultants and talent pool, and (3) have all seen digital trends coming a decade ago.

 

I just don't know what JPM is doing so differently from WFC?

 

It's also my impression that how the bank stocks trade is mostly related to the market's perception of its asset pool and major lines of business. WFC has a large consumer secured business in vulnerable geographies.

 

Well said. I guess I don’t understand the competitive advantage. If you have your average Joe the app for all the major banks, I doubt they would really have any significant preference. Sure there will be some who care about all the functionality etc. But hell, even my shitty little local credit union has an app which lets me mobile deposits check, check my balances, transfer funds, blah blah blah. Sure, it’s not pretty, but who cares. As long as my balance shows up accurately I really couldn’t care less about the app.

 

WFC is a massive bank, I find it hard to believe they couldn’t pay some major firm to build out a tech suit in a year. But all you here is how far they are behind. Far behind in what? Is there some teleportation peripheral device that will spawn stacks of cash in my house that JPM is offering that WFC?

[DooDiligence]

I'll put the kiss of death on this one.

 

I increased my position by about 1/3 last week.

[changegonnacome]

In exactly what area is WFC "so far behind"?

 

What systems don't they have? What talent do they not have access to?

 

It's my impression that all the large banks (1) know what each other is doing in almost all things (2) have similar access to the same consultants and talent pool, and (3) have all seen digital trends coming a decade ago.

 

I just don't know what JPM is doing so differently from WFC?

 

It's also my impression that how the bank stocks trade is mostly related to the market's perception of its asset pool and major lines of business. WFC has a large consumer secured business in vulnerable geographies.

 

My understanding, from speaking to friends in the industry, is that WFC has much more legacy plumbing that requires a significant amount of manual intervention vs. the other two (who have consistently been pivoting away as much as is possible from legacy systems)..........be it regulatory reporting or something as simple as global transaction services.........all things told Wells not only has a bloated branch / retail employee network for the digital age but under the hood they have been less successful in taking the monkey out of the machine (so to speak). Having a surprising amount of processes carried out manually or requiring manual checks meaning large dead head carrying costs. While all banks run on legacy code and on prem solutions (vs. cloud)....WFC has been less aggressive in (a) updating its code base to modern / cloud first tech & (2) given those legacy systems have been unable to take advantage of newer tech in the areas of AI, ML, RPA technologies (robotic process automation) or STP (straight through processing) to the extent that other large players have.

 

To some extent my potential investment in WFC is predicated upon the new CEO driving technology solutions to drive down cost and drive up ROA/ROE........in effect WFC has hidden earnings power that will be unlocked over the next few years

[undervalued]

I'll put the kiss of death on this one.

 

I increased my position by about 1/3 last week.

 

Now it’s going to $15.

[DooDiligence]

I'll put the kiss of death on this one.

 

I increased my position by about 1/3 last week.

 

Now it’s going to $15.

 

Assuredly

[plato1976]

my user experience with merrill edge mobile app is beyond terrible

It's sooooooooooooooooo slow

 

I think boa bank app is ok

 

In exactly what area is WFC "so far behind"?

 

What systems don't they have? What talent do they not have access to?

 

It's my impression that all the large banks (1) know what each other is doing in almost all things (2) have similar access to the same consultants and talent pool, and (3) have all seen digital trends coming a decade ago.

 

I just don't know what JPM is doing so differently from WFC?

 

It's also my impression that how the bank stocks trade is mostly related to the market's perception of its asset pool and major lines of business. WFC has a large consumer secured business in vulnerable geographies.

 

Well said. I guess I don’t understand the competitive advantage. If you have your average Joe the app for all the major banks, I doubt they would really have any significant preference. Sure there will be some who care about all the functionality etc. But hell, even my shitty little local credit union has an app which lets me mobile deposits check, check my balances, transfer funds, blah blah blah. Sure, it’s not pretty, but who cares. As long as my balance shows up accurately I really couldn’t care less about the app.

 

WFC is a massive bank, I find it hard to believe they couldn’t pay some major firm to build out a tech suit in a year. But all you here is how far they are behind. Far behind in what? Is there some teleportation peripheral device that will spawn stacks of cash in my house that JPM is offering that WFC?

[Parsad]

as this drifts lower (along with other banks) - does WFC have a relative advantage over the other Big 3 banks..........I've seen some people talk about COVID19 putting a discount on a discount when it comes to post-scandal Wells

 

New CEO is highly rated not withstanding the 'new Jamie Dimon' BS.......knows technology and Wells obviously needs a lot more tech and a lot less people......should be some levers to pull in this space for him over the coming years + Asset Cap will get lifted one day

 

Interested in any thoughts on why in a number of years why WFC wouldn't close the P/TBV gap with BAC & JPM........giving it a superior 3-5 year upside?

 

Everybody was buying Wells when Buffett was buying, even though it was trading at 1.5 times TBV...."finest run bank in America", "their employees sell more services per customer than any other bank", "Wells customers are of better credit-quality and income".  Then when Buffett started buying JPM and touting Jamie Dimon, everyone started selling Wells and buying JPM. 

 

We all know banking is a simple business.  The top 7 banks in the U.S. have very similar businesses, but there may be some regional characteristics that differentiate them, and the three smaller major banks don't have as robust businesses in the investment banking side.  But overall, we all know banking is a straight forward type of business.  As long as you aren't doing anything stupid, and keep leverage to 10-1 or better, you have a solid business that is fairly easy to manage.  Technology has less to do with it than most of you think, as WFC isn't that far behind JPM, C or BAC. 

 

Wells has a stink on it and they have a large mortgage business...the biggest actually...and so as mentioned, there is a discount upon a discount.  What is funny is how no one wants to touch it at 0.6 of TBV...not unlike Fairfax.  People buying at much higher prices are paralyzed or fearful now.  They'll buy Berkshire and JPM at book, but they won't touch Fairfax and WFC.  This is just normal investor psychology and it permeates value investor's consciousness as much as it permeates the general population of investors.  Common sense tells you what?  But you do something else!  Cheers!

[ERICOPOLY]

Technology has less to do with it than most of you think, as WFC isn't that far behind JPM, C or BAC. 

 

I am a WFC customer and I don't know how much their tech sucks compared to the others' because I haven't tried the others.  I rarely deposit checks and the ATM works just fine and they are located everywhere.  What else do I need?

 

I did sit down and speak with a Wells private banker when I needed a Medallion signature for something I was doing and I talked with him for a while about the stock.  As for cost cutting opportunities, he laughed and said that they still process all of their payroll manually.  He said his morale is much better these days -- he explained that his morale was low before the fake account thing blew up because it was hard for an honest employee like himself to get ahead when peers were rewarded for cheating.

[Spekulatius]

One metric i am considering when looking at WFC, BAC and JPM is who has the best technology platforms in the various business lines. One impact of the virus is everything is moving even more online/mobile so it makes sense to me that the companies with the best online/mobile capabilities will be able to grow share moving forward. Covid will accelerate the seclar trend to online and magnify the opportunity for the leaders. And once people are locked into your ecosystem you likely have them for life (if you are a leader).

 

This also should provide a long runway to continue to lower costs in the medium term (I expect the big banks will be shrinking branches and head count later in the year as the economy continues to struggle). Looking out a couple of years there is lots to like about the big banks. Scale matters more than ever.

 

Who are the ‘Google/Microsoft/Facebook‘ equivalents in banking today?

 

My concern with WFC is they seem to be a couple of years behind BAC and JPM in terms of their transition to the new electronic/online/mobile world. And the issues with the Fed have been slowing their response. Covid will slow things further. So my gut tells me to go with BAC and JPM (likely lower risk but with lower upside).

 

WFC’s expenses are so bloated right now (way too many branches/employees)... but what is their path moving forward? BAC and JPM have been bringing expenses down in a stealth way (reductions being offset by expansions into new cities) and when the economy was strong (so politicians did not care). If WFC tries to aggressively lower expenses right now it will get them crucified by politicians.

 

PS: is i just me or does it look like a few of Buffetts large legacy holdings are slow to embrace technology/pivot to the new world? WFC vs BAC/JPM? Geico vs Progressive? Burlington Northern? Others?

 

I don’t work with enterprise finance stuff, but I can’t imagine it being so difficult that it takes more than a year to roll out a fluid efficient tech stack. I mean what exactly are JPM and others doing that WFC can’t? It’s banking....not VR, AI. I’ve been apart of enough enterprise projects dealing with top secret security standards, HIPAA, and finance data to know it can’t be that difficult.

 

Anyone with experience in this sector?

 

I think what your wrote is correct if you start from scratch, but most likely not correct if you need to seamlessly replace legacy systems that are working together and need to work very reliably without errors for hundred thousands of employees and millions of customers.

 

Imagine if an IT transition blows up and thousand of customer see error sin their statements etc. The CEO will be in front of Congress with a subpoena and defends his “cost cutting”.

 

I think Viking is correct to see the banks partly as tech companies too and I don’t think that Wells Fargo scores that well right now.

[thepupil]

For better or worse Wells seems to really dominate jumbo mortgages in my area.

 

They were excellent and very efficient and came in about 1/4-1/2 point better than competition (I have a 3.125% 10/1 ARM). Worked well under tight deadlines; the mortgage machine runs smoothly at WFC, again n=1 but seem to be the industry leader for a reason (I think they are number one in jumbo’s and number 2 in conventional since quicken’s surge) Their website currently shows 3 3/8 for fixed and 2 7/8 for 10/1 on a jumbo purchase with no relationship discounts or anything. They did stop doing jumbo refi’s recently and even stopped doing all jumbo’s for a hot second.

 

I also like that they hold the jumbo’s rather than securitize; if rates really drop and the refi window re-opens, it will be easier and less costly to modify the loan versus refinance

 

For everything outside of jumbo’s, Wells seems to kind of suck (in my anecdotal experience): terrible investment platform, auto loan rates are terrible, HELOC rates are terrible, no good credit cards (people looove their sapphires or platinum cards but how many people have you ever heard rave about a Wells card). From my perspective their consumer value proposition is pretty bad outside of residential mortgages. Can’t speak on the corporate side.

 

Has anyone ever borrowed from Wells outside of a mortgage and found them to be competitive?

 

 

[CorpRaider]

For better or worse Wells seems to really dominate jumbo mortgages in my area.

 

They were excellent and very efficient and came in about 1/4-1/2 point better than competition (I have a 3.125% 10/1 ARM). Worked well under tight deadlines; the mortgage machine runs smoothly at WFC, again n=1 but seem to be the industry leader for a reason (I think they are number one in jumbo’s and number 2 in conventional since quicken’s surge) Their website currently shows 3 3/8 for fixed and 2 7/8 for 10/1 on a jumbo purchase with no relationship discounts or anything. They did stop doing jumbo refi’s recently and even stopped doing all jumbo’s for a hot second.

 

I also like that they hold the jumbo’s rather than securitize; if rates really drop and the refi window re-opens, it will be easier and less costly to modify the loan versus refinance

 

For everything outside of jumbo’s, Wells seems to kind of suck (in my anecdotal experience): terrible investment platform, auto loan rates are terrible, HELOC rates are terrible, no good credit cards (people looove their sapphires or platinum cards but how many people have you ever heard rave about a Wells card). From my perspective their consumer value proposition is pretty bad outside of residential mortgages. Can’t speak on the corporate side.

 

Has anyone ever borrowed from Wells outside of a mortgage and found them to be competitive?

 

They have a new-ish amex network (weird, huh? well I guess they owned Amex back in the day) propel travel card that is getting some love on some of the travel points sites.  Their signature visa has like a 25% point bonus when booking flights, so it could be attractive as a diversifier for the Chase stuff, but they are lot more strict about opening bonuses and gaming (which as a shareholder they probably should be).  I have that signature one, used to book a flight a few years ago.  They recently sent me a 0% 2% fee cash advance/BT offer.  I might take $20K and buy WFC stock...haha. 

 

I haven't found them to be that competitive on conventional mtg either, but I figure they are just charging a premium for convenience of going to see them if there's a problem with what is the biggest financial transaction for most households.  By the way, where the heck is the traditional 150 BPS spread between 30 year fixed MTG and 10 year UST? 

 

I use them as my checking/deposit bank for convenience, would take a lot to make me switch.  I get something notarized or buy pounds sterling or euros without getting totally gouged at the airport like once every five years.

 

I think being under-indexed to cc loans and over indexed to first lien mortgages that they underwrote is good/great in the current environment.  I love that they have basically no investment bank and limited retail brokerage.  I noticed they are pumping/promoting using zelle for certain payees (e.g., dentist or landscaper) in the online bill pay very recently. 

 

IMOP Wells could stealth cost-cut by holding the line and by moving employees/slots from SF and NYC to CLT.  They already have more employees there.

 

I also have retail accounts with jpm and fido.  JPM is slicker, but I haven't really found any additional functionality versus wells.  I don't see how you attribute the delta versus BAC tech to Buffett when he owns/holds (a lot) more BAC than WFC now.  I definitely buy the advantages big banks will enjoy over regionals with respect to tech spending scale.  I honestly think BAC and WFC could almost be a duopoly of large national banks, with physical presence covering the country (and the required tech offering to go with it).

 

I do think it is selling off because 1) it earned nothing last Q after provisions but paid out a dividend (that ain't likely to continue); 2) accumulated provisions to total assets might have a ways to go based on stress test and peers BofA/JPM; 3) notice that regulators are investigating PPP/still the political football whipping boy; 4) no/less trading bidness which has been making bank right now for competitors (but is inferior business longer term imop) and some of the reasons mentioned above.

 

[CorpRaider]

In exactly what area is WFC "so far behind"?

 

What systems don't they have? What talent do they not have access to?

 

It's my impression that all the large banks (1) know what each other is doing in almost all things (2) have similar access to the same consultants and talent pool, and (3) have all seen digital trends coming a decade ago.

 

I just don't know what JPM is doing so differently from WFC?

 

It's also my impression that how the bank stocks trade is mostly related to the market's perception of its asset pool and major lines of business. WFC has a large consumer secured business in vulnerable geographies.

 

My understanding, from speaking to friends in the industry, is that WFC has much more legacy plumbing that requires a significant amount of manual intervention vs. the other two (who have consistently been pivoting away as much as is possible from legacy systems)..........be it regulatory reporting or something as simple as global transaction services.........all things told Wells not only has a bloated branch / retail employee network for the digital age but under the hood they have been less successful in taking the monkey out of the machine (so to speak). Having a surprising amount of processes carried out manually or requiring manual checks meaning large dead head carrying costs. While all banks run on legacy code and on prem solutions (vs. cloud)....WFC has been less aggressive in (a) updating its code base to modern / cloud first tech & (2) given those legacy systems have been unable to take advantage of newer tech in the areas of AI, ML, RPA technologies (robotic process automation) or STP (straight through processing) to the extent that other large players have.

 

To some extent my potential investment in WFC is predicated upon the new CEO driving technology solutions to drive down cost and drive up ROA/ROE........in effect WFC has hidden earnings power that will be unlocked over the next few years

 

Good stuff.  Thanks! 

[Castanza]

One metric i am considering when looking at WFC, BAC and JPM is who has the best technology platforms in the various business lines. One impact of the virus is everything is moving even more online/mobile so it makes sense to me that the companies with the best online/mobile capabilities will be able to grow share moving forward. Covid will accelerate the seclar trend to online and magnify the opportunity for the leaders. And once people are locked into your ecosystem you likely have them for life (if you are a leader).

 

This also should provide a long runway to continue to lower costs in the medium term (I expect the big banks will be shrinking branches and head count later in the year as the economy continues to struggle). Looking out a couple of years there is lots to like about the big banks. Scale matters more than ever.

 

Who are the ‘Google/Microsoft/Facebook‘ equivalents in banking today?

 

My concern with WFC is they seem to be a couple of years behind BAC and JPM in terms of their transition to the new electronic/online/mobile world. And the issues with the Fed have been slowing their response. Covid will slow things further. So my gut tells me to go with BAC and JPM (likely lower risk but with lower upside).

 

WFC’s expenses are so bloated right now (way too many branches/employees)... but what is their path moving forward? BAC and JPM have been bringing expenses down in a stealth way (reductions being offset by expansions into new cities) and when the economy was strong (so politicians did not care). If WFC tries to aggressively lower expenses right now it will get them crucified by politicians.

 

PS: is i just me or does it look like a few of Buffetts large legacy holdings are slow to embrace technology/pivot to the new world? WFC vs BAC/JPM? Geico vs Progressive? Burlington Northern? Others?

 

I don’t work with enterprise finance stuff, but I can’t imagine it being so difficult that it takes more than a year to roll out a fluid efficient tech stack. I mean what exactly are JPM and others doing that WFC can’t? It’s banking....not VR, AI. I’ve been apart of enough enterprise projects dealing with top secret security standards, HIPAA, and finance data to know it can’t be that difficult.

 

Anyone with experience in this sector?

 

I think what your wrote is correct if you start from scratch, but most likely not correct if you need to seamlessly replace legacy systems that are working together and need to work very reliably without errors for hundred thousands of employees and millions of customers.

 

Imagine if an IT transition blows up and thousand of customer see error sin their statements etc. The CEO will be in front of Congress with a subpoena and defends his “cost cutting”.

 

I think Viking is correct to see the banks partly as tech companies too and I don’t think that Wells Fargo scores that well right now.

I don't disagree. It absolutely has to be precise and flawless in the banking sector. If you start blowing up apps, services, and DBs on legacy systems heads roll. This past year I've had a lot of experience migrating legacy servers and databases to new VMs. Not very exciting stuff.... but this one in particular (an HR server) was so old that we didn't know what would happen if we brought it down. The lubricant on the physical disk was so old it might have hardened up during the downtime before we brought it back up. Ended up working out okay in the end.

 

In the end, I think it's more of a "time/effort/money spent" than a "outpaced proprietary tech" thing. WFC will catch up and JMP, BAC will likely all be relatively even keel for a bit until we see new systems and tools developed. But one thing to note is as we move forward, specifically with backend related stuff, I think the competitive advantage is diminishing. Newer systems today are far more flexible and the containerization we have today makes new tool implementations as easy as a click of a mouse. Hell, most of the cloud stuff I have worked with is basically self service for business unit customers. We set them up with their own little portal and if they need more disk, they check the cost and click the button themselves.

 

Parsad is correct, WFC is not that far behind and once they reach a certain threshold, I don't think JPM and BAC will have a "competitive advantage" like once thought. Of course I could be wrong :p. I've seen the backend of so many companies its funny how they are essentially all running the same stacks. Can't imagine banking will be much different.

[Castanza]

In exactly what area is WFC "so far behind"?

 

What systems don't they have? What talent do they not have access to?

 

It's my impression that all the large banks (1) know what each other is doing in almost all things (2) have similar access to the same consultants and talent pool, and (3) have all seen digital trends coming a decade ago.

 

I just don't know what JPM is doing so differently from WFC?

 

It's also my impression that how the bank stocks trade is mostly related to the market's perception of its asset pool and major lines of business. WFC has a large consumer secured business in vulnerable geographies.

 

My understanding, from speaking to friends in the industry, is that WFC has much more legacy plumbing that requires a significant amount of manual intervention vs. the other two (who have consistently been pivoting away as much as is possible from legacy systems)..........be it regulatory reporting or something as simple as global transaction services.........all things told Wells not only has a bloated branch / retail employee network for the digital age but under the hood they have been less successful in taking the monkey out of the machine (so to speak). Having a surprising amount of processes carried out manually or requiring manual checks meaning large dead head carrying costs. While all banks run on legacy code and on prem solutions (vs. cloud)....WFC has been less aggressive in (a) updating its code base to modern / cloud first tech & (2) given those legacy systems have been unable to take advantage of newer tech in the areas of AI, ML, RPA technologies (robotic process automation) or STP (straight through processing) to the extent that other large players have.

 

To some extent my potential investment in WFC is predicated upon the new CEO driving technology solutions to drive down cost and drive up ROA/ROE........in effect WFC has hidden earnings power that will be unlocked over the next few years

 

Good stuff.  Thanks!

 

+1

[Jurgis]

Anecdotally, I have WF Propel card, which I used when I was traveling. Right now I have to use it, since I got a refund on my cancelled China travel purchases on it. Otherwise, it's not an attractive card right now, since travel+dining is dead.