WFC - Wells Fargo

[sundin]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis.

 

1) Retail banks fund their lending largely through retail deposits which are considered to be stable and more resilient vs  wholesale funding that European banks were engaged in. This paper from BoC talks about Cdn bank resiliency to this regard https://www.bankofcanada.ca/wp-content/uploads/2017/05/boc-review-spring17-truno.pdf

 

2) US and Canada have one central bank. The EU represents a bunch of different nations. It's hard to get immediate funding action like we have had for covid and GFC. Quick monetary action makes banks stronger.

 

3) Lastly, USD is the reserve currency. Hard to see it have a negative rate like the EU.

[Spekulatius]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis.

 

1) Retail banks fund their lending largely through retail deposits which are considered to be stable and more resilient vs  wholesale funding that European banks were engaged in. This paper from BoC talks about Cdn bank resiliency to this regard https://www.bankofcanada.ca/wp-content/uploads/2017/05/boc-review-spring17-truno.pdf

 

2) US and Canada have one central bank. The EU represents a bunch of different nations. It's hard to get immediate funding action like we have had for covid and GFC. Quick monetary action makes banks stronger.

 

3) Lastly, USD is the reserve currency. Hard to see it have a negative rate like the EU.

 

FED officials specifically said that they don’t want negative I retest rates just a short while ago . This came from the head of the Missouri Fed as well as from Powell. It counts for something, imo.

[erdospi]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis.

 

1) Retail banks fund their lending largely through retail deposits which are considered to be stable and more resilient vs  wholesale funding that European banks were engaged in. This paper from BoC talks about Cdn bank resiliency to this regard https://www.bankofcanada.ca/wp-content/uploads/2017/05/boc-review-spring17-truno.pdf

 

2) US and Canada have one central bank. The EU represents a bunch of different nations. It's hard to get immediate funding action like we have had for covid and GFC. Quick monetary action makes banks stronger.

 

3) Lastly, USD is the reserve currency. Hard to see it have a negative rate like the EU.

 

FED officials specifically said that they don’t want negative I retest rates just a short while ago . This came from the head of the Missouri Fed as well as from Powell. It counts for something, imo.

 

Don’t think they wanted to cut to 0 and buy corporate debt either but now they have. 

[erdospi]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis.

 

1) Retail banks fund their lending largely through retail deposits which are considered to be stable and more resilient vs  wholesale funding that European banks were engaged in. This paper from BoC talks about Cdn bank resiliency to this regard https://www.bankofcanada.ca/wp-content/uploads/2017/05/boc-review-spring17-truno.pdf

 

2) US and Canada have one central bank. The EU represents a bunch of different nations. It's hard to get immediate funding action like we have had for covid and GFC. Quick monetary action makes banks stronger.

 

3) Lastly, USD is the reserve currency. Hard to see it have a negative rate like the EU.

 

1.  This has become somewhat worse in the US than it was historically.

 

2.  Good point, not sure how relative this will matter longer term.

 

3.  Why would the reserve currency not be able to have a negative rate? 

[Parsad]

It's not just that it's down, it's down relative to peers without a good explanation. WFC is a 9-1 levered black box that is mysteriously underperforming all the other black boxes.  Does it make you wonder what you don't know? 

 

 

Where do you get black box from?  WFC discloses a considerable amount of data in their annual reports.  The Fed provides extensive stress tests on the banks, including WFC, with a full breakdown of expected losses in adverse scenarios.  Hundreds of analysts have sifted through banking data and the stress tests.  If there is one industry that is a model of transparency, it would be the U.S.banking system!  Cheers!

[Parsad]

Given all of the scandal they have undergone the last 2-3 years, their steady hand a share repurchase has been shrewd and IMPRESSIVE.  They were repurchasing shares at an unbelievable pace.

Doesn't seem so shrewd to me. The vast majority of shares were repurchased at about $50, the share price today is less than half that. What's worse is that the share repurchase program is actually suspended at the moment, so no shares will be repurchased at these low prices.

 

Don't get me wrong though, Wells does looks cheap, but even before covid, it looked a bit like it was on the ropes (Q3+Q4 of last year were not good quarters). Q1 of this year was bad, Q2 will also be bad. The momentum of the business here does not look good, so I've swerved it and decided to buy Bank of America. It has a similar valuation, but doesn't have the Wily E. Coyote, falling off a precipice feel that Wells does with its recent earnings and revenue. With that said, Charles Scharf could be the guy to turn this thing around. Would not bet against him, but BAC seems the slightly safer bet right now.

 

WFC looks somewhat undervalued on P/B or P/E basis compared to BAC/JPM/UBS.

But seems to me extremely undervalued if you look at Mktcap/Total Asset.

I don't think the comparison are valid. BAC and JPM both have much larger investment banks attached to them.

 

Maybe WFC is more comparable in business model to USB, which is down more than 40% for the year.

 

That's actually a merger waiting to happen!  Cheers!

[Parsad]

The low cost deposit base actually comes from being a heavy retail bank. And yes that business model is very profitable. If you take out Merrill Lynch B of A today would probably have similarly low costs. Same with TD in Canada.

 

TD and WFC are very comparable in being high touch retail banks. But I feel that Moynihan has done a great job at B of A turning it into one of these.

 

Interestingly TD had allegations of similar issues to WFC in 2017 where sales advisors were selling products customers didn't know they applied for and issues related to tied selling etc. Its since moved past this.

 

This year Scharf has hired two key executives from TD that were instrumental in helping the bank through those issues.

 

That would also be a fantastic merger, but Canada won't let TD do that.  Cheers!

[Spekulatius]

Given all of the scandal they have undergone the last 2-3 years, their steady hand a share repurchase has been shrewd and IMPRESSIVE.  They were repurchasing shares at an unbelievable pace.

Doesn't seem so shrewd to me. The vast majority of shares were repurchased at about $50, the share price today is less than half that. What's worse is that the share repurchase program is actually suspended at the moment, so no shares will be repurchased at these low prices.

 

Don't get me wrong though, Wells does looks cheap, but even before covid, it looked a bit like it was on the ropes (Q3+Q4 of last year were not good quarters). Q1 of this year was bad, Q2 will also be bad. The momentum of the business here does not look good, so I've swerved it and decided to buy Bank of America. It has a similar valuation, but doesn't have the Wily E. Coyote, falling off a precipice feel that Wells does with its recent earnings and revenue. With that said, Charles Scharf could be the guy to turn this thing around. Would not bet against him, but BAC seems the slightly safer bet right now.

 

WFC looks somewhat undervalued on P/B or P/E basis compared to BAC/JPM/UBS.

But seems to me extremely undervalued if you look at Mktcap/Total Asset.

I don't think the comparison are valid. BAC and JPM both have much larger investment banks attached to them.

 

Maybe WFC is more comparable in business model to USB, which is down more than 40% for the year.

 

That's actually a merger waiting to happen!  Cheers!

 

I think it is very unlikely that one of the big 3 banks ( WFC, BAC, JPM) will be allowed to do significant mergers with other banks in the near term future.

[Junto]

Given all of the scandal they have undergone the last 2-3 years, their steady hand a share repurchase has been shrewd and IMPRESSIVE.  They were repurchasing shares at an unbelievable pace.

Doesn't seem so shrewd to me. The vast majority of shares were repurchased at about $50, the share price today is less than half that. What's worse is that the share repurchase program is actually suspended at the moment, so no shares will be repurchased at these low prices.

 

Don't get me wrong though, Wells does looks cheap, but even before covid, it looked a bit like it was on the ropes (Q3+Q4 of last year were not good quarters). Q1 of this year was bad, Q2 will also be bad. The momentum of the business here does not look good, so I've swerved it and decided to buy Bank of America. It has a similar valuation, but doesn't have the Wily E. Coyote, falling off a precipice feel that Wells does with its recent earnings and revenue. With that said, Charles Scharf could be the guy to turn this thing around. Would not bet against him, but BAC seems the slightly safer bet right now.

 

WFC looks somewhat undervalued on P/B or P/E basis compared to BAC/JPM/UBS.

But seems to me extremely undervalued if you look at Mktcap/Total Asset.

I don't think the comparison are valid. BAC and JPM both have much larger investment banks attached to them.

 

Maybe WFC is more comparable in business model to USB, which is down more than 40% for the year.

 

That's actually a merger waiting to happen!  Cheers!

 

I think it is very unlikely that one of the big 3 banks ( WFC, BAC, JPM) will be allowed to do significant mergers with other banks in the near term future.

 

It won’t happen because it is against the rules. You can’t do a merger when you are over 10% of deposits.

[Mephistopheles]

Can they do a merger with an IB? I think a WFC-MS tie up would be a perfect match. Pairing the deposit base with the brokerage operation. Like BofA Merrill.

 

Better for both companies to compete with JPM/BAC.

[sundin]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis.

 

1) Retail banks fund their lending largely through retail deposits which are considered to be stable and more resilient vs  wholesale funding that European banks were engaged in. This paper from BoC talks about Cdn bank resiliency to this regard https://www.bankofcanada.ca/wp-content/uploads/2017/05/boc-review-spring17-truno.pdf

 

2) US and Canada have one central bank. The EU represents a bunch of different nations. It's hard to get immediate funding action like we have had for covid and GFC. Quick monetary action makes banks stronger.

 

3) Lastly, USD is the reserve currency. Hard to see it have a negative rate like the EU.

 

1.  This has become somewhat worse in the US than it was historically.

 

2.  Good point, not sure how relative this will matter longer term.

 

3.  Why would the reserve currency not be able to have a negative rate?

 

I'm sure everyone has an opinion on this but I don't think the fed wants to get in a situation of offering interest credits and taking on more debt on its balance sheet. Also all this debt likely can't be paid back, but because its the reserve currency it can continue to roll over the debt in the hopes of inflating their way out of most of it.

 

[Guest cherzeca]

just read this:  "(Thursday morning it also was revealed that Wells will require new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000.)"

 

this is crazy.  is this the new normal for banks or just WFC?

 

Edit: from Inside Mortgage Finance

[Gregmal]

just read this:  "(Thursday morning it also was revealed that Wells will require new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000.)"

 

this is crazy.  is this the new normal for banks or just WFC?

 

Edit: from Inside Mortgage Finance

 

This is one of the main reasons I wouldn't touch WFC. Business is getting squeezed everywhere, the government is up their ass, and then on top of it they are doing stuff like this. Absolutely no reason for eliminating huge portions of your potential customer base. I know a lot of reasonably wealthy folks. Almost all have assets tied up, many in real estate. The idea of parking $1M+, even for wealthy folks, can be highly restrictive. Especially for something as simple, and likely collateralized, like a refi. Totally asinine.

[fareastwarriors]

just read this:  "(Thursday morning it also was revealed that Wells will require new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000.)"

 

this is crazy.  is this the new normal for banks or just WFC?

 

Edit: from Inside Mortgage Finance

 

This is one of the main reasons I wouldn't touch WFC. Business is getting squeezed everywhere, the government is up their ass, and then on top of it they are doing stuff like this. Absolutely no reason for eliminating huge portions of your potential customer base. I know a lot of reasonably wealthy folks. Almost all have assets tied up, many in real estate. The idea of parking $1M+, even for wealthy folks, can be highly restrictive. Especially for something as simple, and likely collateralized, like a refi. Totally asinine.

 

This change will only affect a small portion of homeowners in VHCOL places. For majority of country, there is no change.

 

 

.

 

Wells Fargo was the biggest player in jumbo mortgages last year, according to research firm Inside Mortgage Finance.

 

 

 

In response, bank managers told their personnel that changes were coming that would relax some of those restrictions.

 

Last week, the bank issued an “expansion of guidelines” that did away with the $250,000 requirement for existing customers: People with a Wells Fargo bank or brokerage account of any level, or those who already had a mortgage with the firm, as of the end of June were granted access to jumbo refinances.

 

“The changes we implemented on July 1 substantially increased the number of borrowers from which we’ll accept applications for non-conforming refinances,” Wells Fargo spokesman Tom Goyda said in an emailed statement.

 

But for new customers, who could previously bring $250,000 to the bank if they wanted a jumbo refinance, the lender has become more discerning. The $1 million requirement can be satisfied with a combination of deposits or investment balances, the people said.

 

https://www.cnbc.com/2020/07/09/wells-fargo-mortgages-bank-tells-new-clients-they-need-1-million-to-qualify-for-jumbo-refi.html

[Guest cherzeca]

"the lender has become more discerning..."

 

discerning is not the word I would have used.  lenders are discerning when analyzing creditworthiness of borrower in connection with a refi app.  this looks like just a bad business idea to me....sort of a cousin of fake account madness...but at least now you know you are being ripped off

[CorpRaider]

Seems prudent and fitting with my impressions of Wells. 

 

New customers looking to refi their large $$$ value homes (which are probably concentrated in dense urban environments which may be about to get decimated by urban flight part 2), during global pandemic, without a prior relationship (so ~1/3 of America is already exempt) probably do need to demonstrate strong liquidity or a global relationship benefit to the bank in order to access the balance sheet.  I doubt they are hurting for mortgage refinance demand at present.

 

 

 

[sleepydragon]

I suspect it’s not just WFC, all the banks are trying to find ways of reduce lending at the current mkt.

 

[erdospi]

I suspect it’s not just WFC, all the banks are trying to find ways of reduce lending at the current mkt.

 

Isn’t that a bit deflationary if everyone pulls back on lending?  Makes sense for WFC but if the banks as a whole pull back that’s not good.

[ratiman]

It's not just that it's down, it's down relative to peers without a good explanation. WFC is a 9-1 levered black box that is mysteriously underperforming all the other black boxes.  Does it make you wonder what you don't know? 

 

 

Where do you get black box from?  WFC discloses a considerable amount of data in their annual reports.  The Fed provides extensive stress tests on the banks, including WFC, with a full breakdown of expected losses in adverse scenarios.  Hundreds of analysts have sifted through banking data and the stress tests.  If there is one industry that is a model of transparency, it would be the U.S.banking system!  Cheers!

 

The stress tests (whether Fed or self-reported) provide the conclusions but don't give the analysis. Relying on a government report to make investment decisions sounds even worse than relying on credit agencies. Next week's earnings report and dividend announcement should answer a lot of questions.

[LC]

I would heed ratiman's post wisely - FRB does not publish the judgmental inputs and assumptions used to drive their results.

[Spekulatius]

just read this:  "(Thursday morning it also was revealed that Wells will require new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000.)"

 

this is crazy.  is this the new normal for banks or just WFC?

 

Edit: from Inside Mortgage Finance

What they are really saying is that they don’t want new customers right now, unless they are really worth it.  Invert this and ask yourself, why a high net worth customer does not refinance with his existing banking relationship.

[Guest cherzeca]

just read this:  "(Thursday morning it also was revealed that Wells will require new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000.)"

 

this is crazy.  is this the new normal for banks or just WFC?

 

Edit: from Inside Mortgage Finance

What they are really saying is that they don’t want new customers right now, unless they are really worth it.  Invert this and ask yourself, why a high net worth customer does not refinance with his existing banking relationship.

 

a better rate? 

[fareastwarriors]

just read this:  "(Thursday morning it also was revealed that Wells will require new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000.)"

 

this is crazy.  is this the new normal for banks or just WFC?

 

Edit: from Inside Mortgage Finance

What they are really saying is that they don’t want new customers right now, unless they are really worth it.  Invert this and ask yourself, why a high net worth customer does not refinance with his existing banking relationship.

 

a better rate?

 

My friends moved $500k to get a better rate at Citi a few months before COVID. Of course they bought a place in San Francisco... 

[Gregmal]

just read this:  "(Thursday morning it also was revealed that Wells will require new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000.)"

 

this is crazy.  is this the new normal for banks or just WFC?

 

Edit: from Inside Mortgage Finance

What they are really saying is that they don’t want new customers right now, unless they are really worth it.  Invert this and ask yourself, why a high net worth customer does not refinance with his existing banking relationship.

 

A strange about face from wanting them sooo bad that their employees, on a systematic basis, felt the pressure to fraudulently open accounts for fear of their jobs.

[DooDiligence]

The asset cap would be one contributing factor for turning away business.

It was imposed after the fraud was made public in 2016, not before.