WFC - Wells Fargo

[jwelborn93]

Has anyone seen any good research on the sensitivity of WFC earnings / NIM to changes in interest rates / the yield curve?  Even if WFC loses a year or two of earnings due to loan losses, it feels like the key question here is what go-forward return on tangible equity will be in the new environment. 

[mcliu]

Has anyone seen any good research on the sensitivity of WFC earnings / NIM to changes in interest rates / the yield curve?  Even if WFC loses a year or two of earnings due to loan losses, it feels like the key question here is what go-forward return on tangible equity will be in the new environment.

 

I think it's about $1.5B in NII for 100bps parallel move based on sensitivity table in their 10K.

[Parsad]

Honestly, would it be this low if Sloan was still running the show? You have the oil patch, commercial real estate, and consumer spending at risk. Add on the new CEO, the continued selling of Warren Buffett, I can see why investors would lose their confidence. Even though it trades well below book, going into an unknown crisis, would you take the discount given these uncertainties and unknown execution, or would you take the jockey at JPM or BAC? It's definitely getting interesting, at some point the price is worth it.

 

Moynihan is probably the most under-rated bank CEO in the world!  I've loved the guy ever since I bought BAC at $5, and I'll keep it till he goes or retires.  He's not as eloquent as Dimon, but he knows banking and he knows his company. 

 

Like I said before...you don't need Jamie Dimon to make a successful bank.  You need someone with common sense, who keeps leverage under control, keeps the banking simple to deposits, loans, credit, investments and finance.  Keep a strong balance sheet, meet your customer's daily needs and use capital and technology rationally. 

 

As long as WFC can do that, with any CEO, it will eventually go back up to book.  Cheers!

[alwaysdrawing]

I think we'll find out soon what WB did last quarter, his 13F should come out this week or next.

 

We already know what WB did last quarter with regards to his bank holdings.  The large holdings have market values as of 3/31 in the 10-Q, from that, it didn’t look like he was a seller.  And he filed a late April 13G showing him buying more US Bank.

 

Uncle Warren selling some US Bank....last couple days.  Wonder if more is coming...

 

https://www.sec.gov/Archives/edgar/data/36104/000120919120028815/xslF345X03/doc4.xml

 

He's now under 10% ownership, so future sales do not need to be reported.

[Shane]

I think we'll find out soon what WB did last quarter, his 13F should come out this week or next.

 

We already know what WB did last quarter with regards to his bank holdings.  The large holdings have market values as of 3/31 in the 10-Q, from that, it didn’t look like he was a seller.  And he filed a late April 13G showing him buying more US Bank.

 

Uncle Warren selling some US Bank....last couple days.  Wonder if more is coming...

 

https://www.sec.gov/Archives/edgar/data/36104/000120919120028815/xslF345X03/doc4.xml

 

He's now under 10% ownership, so future sales do not need to be reported.

 

Doesn't he have to sell to stay under 10%?

[alwaysdrawing]

I think we'll find out soon what WB did last quarter, his 13F should come out this week or next.

 

We already know what WB did last quarter with regards to his bank holdings.  The large holdings have market values as of 3/31 in the 10-Q, from that, it didn’t look like he was a seller.  And he filed a late April 13G showing him buying more US Bank.

 

Uncle Warren selling some US Bank....last couple days.  Wonder if more is coming...

 

https://www.sec.gov/Archives/edgar/data/36104/000120919120028815/xslF345X03/doc4.xml

 

He's now under 10% ownership, so future sales do not need to be reported.

 

Doesn't he have to sell to stay under 10%?

 

Perhaps—usually that’s related to buybacks. I thought US Bank suspended its buyback program, but perhaps he needed to sell to get under the bank holding company threshold.

 

https://www.usbank.com/newsroom/stories/us-bank-temporarily-halts-share-buyback-program.html

[KCLarkin]

I am constantly surprised by the love for WFC....the king of the shitco banks.

 

Per a previous post, they returned $94B directly to shareholders (div+bb) in the last four years. Remind me which companies you own that can top that?

[alwaysdrawing]

I am constantly surprised by the love for WFC....the king of the shitco banks.

 

Per a previous post, they returned $94B directly to shareholders (div+bb) in the last four years. Remind me which companies you own that can top that?

 

I’m not sure I follow...the ROI on those buybacks don’t look particularly attractive right now, and the dividends are evidence they did not have productive ways to reinvest in the business.

 

Not only that, but it’s backwards looking in an environment that looks to be significantly different on a going forward basis. WFC itself is saying there’s big trouble—they are cutting off HELOCs and jumbo loans. What does that imply about their existing book?

 

I can’t say I hit all winners myself, but the one idea I posted a thread on a couple years ago (adtech stock TTD) is up 4x or so since I posted the thread. I also posted in early March that I was buying puts on banks, hotels, restaurants, airlines, market indexes, and have been calling a coming depression.

 

On March 9, you said “COVID is not material for most companies”. How’s that thesis working?

 

I said at that time buying banks at tangible book value was crazy, and I stand by that. WFC was $34 then

[Viking]

Honestly, would it be this low if Sloan was still running the show? You have the oil patch, commercial real estate, and consumer spending at risk. Add on the new CEO, the continued selling of Warren Buffett, I can see why investors would lose their confidence. Even though it trades well below book, going into an unknown crisis, would you take the discount given these uncertainties and unknown execution, or would you take the jockey at JPM or BAC? It's definitely getting interesting, at some point the price is worth it.

 

Moynihan is probably the most under-rated bank CEO in the world!  I've loved the guy ever since I bought BAC at $5, and I'll keep it till he goes or retires.  He's not as eloquent as Dimon, but he knows banking and he knows his company. 

 

Like I said before...you don't need Jamie Dimon to make a successful bank.  You need someone with common sense, who keeps leverage under control, keeps the banking simple to deposits, loans, credit, investments and finance.  Keep a strong balance sheet, meet your customer's daily needs and use capital and technology rationally. 

 

As long as WFC can do that, with any CEO, it will eventually go back up to book.  Cheers!

 

I think Moynihan may have also de-risked the company which could lead to some nice outperformance versus peers moving forward. Leverage is way down. Quality of borrowers is much higher. Excess capital is much higher. Compared to 2008. Who has been swimming naked? We will soon find out :-)

[undervalued]

Honestly, would it be this low if Sloan was still running the show? You have the oil patch, commercial real estate, and consumer spending at risk. Add on the new CEO, the continued selling of Warren Buffett, I can see why investors would lose their confidence. Even though it trades well below book, going into an unknown crisis, would you take the discount given these uncertainties and unknown execution, or would you take the jockey at JPM or BAC? It's definitely getting interesting, at some point the price is worth it.

 

Moynihan is probably the most under-rated bank CEO in the world!  I've loved the guy ever since I bought BAC at $5, and I'll keep it till he goes or retires.  He's not as eloquent as Dimon, but he knows banking and he knows his company. 

 

Like I said before...you don't need Jamie Dimon to make a successful bank.  You need someone with common sense, who keeps leverage under control, keeps the banking simple to deposits, loans, credit, investments and finance.  Keep a strong balance sheet, meet your customer's daily needs and use capital and technology rationally. 

 

As long as WFC can do that, with any CEO, it will eventually go back up to book.  Cheers!

 

I think Moynihan may have also de-risked the company which could lead to some nice outperformance versus peers moving forward. Leverage is way down. Quality of borrowers is much higher. Excess capital is much higher. Compared to 2008. Who has been swimming naked? We will soon find out :-)

 

Warren sells so he can pick it back up when it touches $5.

[meiroy]

https://www.wsj.com/articles/jpmorgan-extends-banking-services-to-bitcoin-exchanges-11589281201

 

JPMorgan Chase & Co. has taken on two well-known bitcoin exchanges, Coinbase Inc. and Gemini Trust Co., as banking customers.

 

 

[KCLarkin]

I am constantly surprised by the love for WFC....the king of the shitco banks.

 

Per a previous post, they returned $94B directly to shareholders (div+bb) in the last four years. Remind me which companies you own that can top that?

 

I’m not sure I follow...the ROI on those buybacks don’t look particularly attractive right now, and the dividends are evidence they did not have productive ways to reinvest in the business.

 

Not only that, but it’s backwards looking in an environment that looks to be significantly different on a going forward basis. WFC itself is saying there’s big trouble—they are cutting off HELOCs and jumbo loans. What does that imply about their existing book?

 

I can’t say I hit all winners myself, but the one idea I posted a thread on a couple years ago (adtech stock TTD) is up 4x or so since I posted the thread. I also posted in early March that I was buying puts on banks, hotels, restaurants, airlines, market indexes, and have been calling a coming depression.

 

On March 9, you said “COVID is not material for most companies”. How’s that thesis working?

 

I said at that time buying banks at tangible book value was crazy, and I stand by that. WFC was $34 then

 

Sorry, I didn’t mean that as a personal attack. I’m just saying that WFC had elite capital returns. The only company that clearly outclasses WFC is Apple. It doesn’t negate the rest of your argument. But does explain the love for WFC, especially when you can buy for less than book.

[KCLarkin]

On March 9, you said “COVID is not material for most companies”. How’s that thesis working

 

Ha! Let’s not pollute this thread by talking about Covid, but the SP500 is actually up since March 9th.

 

But that was not the thesis of my post on March 9th. I said the market was expensive and complacent. Financials had material risk. And I was selling stocks to raise cash.

 

I am a perma-bull, so that is as bearish as I get. Still bearish BTW. But I like to check in on WFC when it hits 52 week lows.

[Parsad]

I think we'll find out soon what WB did last quarter, his 13F should come out this week or next.

 

We already know what WB did last quarter with regards to his bank holdings.  The large holdings have market values as of 3/31 in the 10-Q, from that, it didn’t look like he was a seller.  And he filed a late April 13G showing him buying more US Bank.

 

Uncle Warren selling some US Bank....last couple days.  Wonder if more is coming...

 

https://www.sec.gov/Archives/edgar/data/36104/000120919120028815/xslF345X03/doc4.xml

 

He's now under 10% ownership, so future sales do not need to be reported.

 

Doesn't he have to sell to stay under 10%?

 

Nope.  Berkshire can go over 10% ownership rules, but only through buybacks...not by acquiring shares in the open market.  That's why they held well over 10% of WFC at their peak ownership.  Cheers!

[JRM]

Isn't part of the thesis here that the big banks are basically GSE's?  As long as they follow the rules the government will backstop them.

 

Its unfortunate they were buying back shares in the 40's and 50's and now shares are at $20 and they stopped the buyback.  Seems like the natural cycle of these things.

[Dalal.Holdings]

WFC market cap:  $95 billion

SHOP market cap: $90 billion

 

Are you thinking a barbell strategy?

 

no position in either security, but wow.

 

I guess not.  8)

 

At this point, I'll go "barbell":

 

Now long WFC + long PTON

[thepupil]

Isn't part of the thesis here that the big banks are basically GSE's?  As long as they follow the rules the government will backstop them.

 

well...how'd that work out for GSE common (and pref) shareholders when the GSE's needed capital.

 

you can be important without your equity surviving. I am not predicting anything as it relates to WFC, I'm just saying that systemically important and positive returns to shareholders are not the same thing.

[JRM]

it didn't turn out well for fannie mae or freddy mac.  It didn't turn out well for GM.

 

There seems to be a weird desire not to wipe out equity holders for public utilities and big banks.  Could always be different this time around.

 

I'm trying to wrap my head around how Munger has 45% of his portfolio in a single position.

[thepupil]

I'm trying to wrap my head around how Munger has 45% of his portfolio in a single position.

 

I think this is a dangerous way to frame WFC and Munger's investment therein.

 

Do you know CM's personal balance sheet? How does his investment in Himalaya compare to WFC? How much cash does he hold in the bank? If WFC went to zero how many hundreds of millions/billions would he be worth?

 

Again, I'm not taking a position on WFC, but I am really skeptical about logic like this: WFC is a huge position for Daily Journal, ergo WFC at today's price under today's conditions is a good bet. I'm not saying that you're making that leap, but that could be a leap that's made.

 

[JRM]

I'm trying to wrap my head around how Munger has 45% of his portfolio in a single position.

 

I think this is a dangerous way to frame WFC and Munger's investment therein.

 

Do you know CM's personal balance sheet? How does his investment in Himalaya compare to WFC? How much cash does he hold in the bank? If WFC went to zero how many hundreds of millions/billions would he be worth?

 

Again, I'm not taking a position on WFC, but I am really skeptical about logic like this: WFC is a huge position for Daily Journal, ergo WFC at today's price under today's conditions is a good bet. I'm not saying that you're making that leap, but that could be a leap that's made.

 

You're right.  I meant DJCO's portfolio.  Still, that's a pretty strong bet.

[erdospi]

What are WFC normalized earnings given their continued NIM compression if rates are sustained at these levels for 10 years?

[gfp]

This made me wonder how much DJCO Charlie actually owns.  Best I could tell it was 100,000 shares, half of which were put in various trusts for his heirs some time back.  So "the Mungers" only have around $27 million of exposure to DJCO stock unless I am missing large earlier transfers to heirs- which is entirely possible.

 

 

I'm trying to wrap my head around how Munger has 45% of his portfolio in a single position.

 

I think this is a dangerous way to frame WFC and Munger's investment therein.

 

Do you know CM's personal balance sheet? How does his investment in Himalaya compare to WFC? How much cash does he hold in the bank? If WFC went to zero how many hundreds of millions/billions would he be worth?

 

Again, I'm not taking a position on WFC, but I am really skeptical about logic like this: WFC is a huge position for Daily Journal, ergo WFC at today's price under today's conditions is a good bet. I'm not saying that you're making that leap, but that could be a leap that's made.

[gurpaul88]

Anyone know what his cost basis is through DJCO?

[gfp]

Anyone know what his cost basis is through DJCO?

 

Wabuffo would.  He basically bottom-ticked it during the financial crisis.  Single digits I believe

[wabuffo]

Wabuffo would.  He basically bottom-ticked it during the financial crisis.  Single digits I believe

 

Munger's cost basis was $15.5M that DJCO laid out during the first quarter of 2009 for 1,591,800 WFC shares and 140,000 USB shares.  The entire ownership stake in the  two stocks was purchased during that quarter and no shares of either stock have ever been sold.

 

So, the avg cost per share for both combined was $8.95 per share

 

-  WFC's lowest price in Q1, 2009 was $7.80

-  USB's lowest price in Q1, 2009 was $8.06

 

Since the WFC position is over 90% of the total amount spent on purchase during that quarter, and both stocks were in the single-digits during the period Munger was buying, an average cost basis per share of a bit less than ~$9 per WFC share is probably about right.

 

You didn't ask, but Munger also purchased 2,300,000 common shares of BAC during the December quarter of 2011 for $13,581,000.  So DJCO's cost basis in BAC is $5.90 per share.

 

Hope this helps,

wabuffo