WFC - Wells Fargo

[Jurgis]

It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

 

I'm somewhat amazed about people who earn 80-120K+ whining about low income. They are somewhere in the top 7-10% by income assuming 2 earners in household ( http://www.mybudget360.com/wp-content/uploads/2011/12/distribution-of-household-income-united-states1.png ).

 

On one hand, I understand your explanation of this: they are riled about the 1%-ers or 0.1%-ers and the "exponential thing".

 

On the other hand, even if we did something about income inequality, these people would likely not benefit at all. I.e. if 1%-ers or 0.1%-ers paid more taxes, and the bottom 10-25% got more earned income credits (or something like that), the 80-120K-ers would still be where they are. Would they still whine? Is that the human condition of not being happy whatever you have?

 

(Yeah, we should move this to some other thread...  8) )

[Jurgis]

Good post, flesh.  8)

[Guest Schwab711]

This assumes zero growth for earnings/dividend (BV increases by avg of ~$0.6325/qtr).

 

If ROTE remain > 10%, I believe 1.3x P/B is very reasonable. The warrants may eventually be worth 1.01 shares, which would boost CAGR by ~1%. Historically, WFC trades at 1.6x to 1.7x P/B.

[Picasso]

Does historical P/B really matter?  The future for large banks such as WFC doesn't look nearly as good as the past.  It's like saying WMT used to average 30x earnings so let's use that as a basis for buying a LEAP that expires in a couple years.  A lot can go wrong with the warrants over that time frame.  It would be more interesting if there were at least five years left on them.

[Guest Schwab711]

Does historical P/B really matter?  The future for large banks such as WFC doesn't look nearly as good as the past.  It's like saying WMT used to average 30x earnings so let's use that as a basis for buying a LEAP that expires in a couple years.  A lot can go wrong with the warrants over that time frame.  It would be more interesting if there were at least five years left on them.

 

Agreed on the historical P/B, but I didn't know what else to use without looking like I'm pulling numbers out of the air. Capital requirements are increasing again in 2017. I think WFC ROTE will be greater than average ROTE for all banks during the next 2 years and at expiration. For that reason, I think they will trade a premium to book (assuming no major write-offs, recession, ect). What that exact premium will be, I don't know.

 

Break-even on the warrants is 1.15x P/B in Oct 2018. Can WFC grow earnings is the big question. If they can, everything else will take care of itself. If they can't then you would be better off holding the common or finding another idea altogether.

[undervalued]

It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

 

I'm somewhat amazed about people who earn 80-120K+ whining about low income. They are somewhere in the top 7-10% by income assuming 2 earners in household ( http://www.mybudget360.com/wp-content/uploads/2011/12/distribution-of-household-income-united-states1.png ).

 

On one hand, I understand your explanation of this: they are riled about the 1%-ers or 0.1%-ers and the "exponential thing".

 

On the other hand, even if we did something about income inequality, these people would likely not benefit at all. I.e. if 1%-ers or 0.1%-ers paid more taxes, and the bottom 10-25% got more earned income credits (or something like that), the 80-120K-ers would still be where they are. Would they still whine? Is that the human condition of not being happy whatever you have?

 

(Yeah, we should move this to some other thread...  8) )

 

Most of these people whine because the group they hang out with earn over $150k. They don't hang out with the landscaper who's cutting their grass. The grass is greener on the other side for most people.

[rkbabang]

It's also not about the level of wealth or income. It's about the disparity. Whether they're getting a fair shake. I hang out in some very fancy circles where people are pissed off about income inequality despite making some very handsome incomes because income inequality isn't just a rich vs poor thing. It's an exponential thing that happens all along the income ladder. It's about what's fair not how much you make.

 

I'm somewhat amazed about people who earn 80-120K+ whining about low income. They are somewhere in the top 7-10% by income assuming 2 earners in household ( http://www.mybudget360.com/wp-content/uploads/2011/12/distribution-of-household-income-united-states1.png ).

 

On one hand, I understand your explanation of this: they are riled about the 1%-ers or 0.1%-ers and the "exponential thing".

 

On the other hand, even if we did something about income inequality, these people would likely not benefit at all. I.e. if 1%-ers or 0.1%-ers paid more taxes, and the bottom 10-25% got more earned income credits (or something like that), the 80-120K-ers would still be where they are. Would they still whine? Is that the human condition of not being happy whatever you have?

 

(Yeah, we should move this to some other thread...  8) )

 

Most of these people whine because the group they hang out with earn over $150k. They don't hang out with the landscaper who's cutting their grass. The grass is greener on the other side for most people.

 

Bingo.  Yes some people will always whine no matter where they are.  Envy is an ugly thing and all too common.  And it is the squeaky wheel that gets the grease. Nobody notices the people who don't whine only the loud mouths who do.  Which is why the politicians are always trying to appease the whiners.

[DonFanucci]

He noted that in the US the distance between these two points was at the level that historically had spawned revolutions.

 

This is interesting to me, because never before have we had such a powerful propaganda machine as we do now. There's an entire TV network dedicated to promoting the message that anyone can succeed if they just work hard enough, when really, America has horrible income mobility. People truly believe in the American dream, when really, if you want to go from poor to wealthy, America's pretty well the last first-world country where you'd want to live.  (It probably is one of the best countries to live in if you don't just want to get rich, but make billions.)

 

So I'm curious whether this propaganda can succeed over the long term and eventually create a Brave New World dystopia, or if something upsets that trend.

 

I think RB's totally nailed it with Sanders and Trump being two of the first manifestations of this dissatisfaction over income inequality.

 

The American Dream isn't just getting rich. Millions of immigrants didn't come to America with the idea that they were going to be rich. The American Dream is the idea that you are free to make the choices necessary to have a fulfilled life. That could mean being a billionaire hedge fund manager or a kindergarten teacher or whatever career you value. Or it could be having a difficult job but raising your children. There's no reason to define the American dream in terms of simple materialism.

 

We hashed out the income inequality bit in another thread but I will just say that this is first level thinking. Income inequality doesn't cause instability- the perceived justice/injustice of inequality causes instability. It's an intellectual trend lately to denounce inequality- difference- as such. But that makes no distinction between difference that's deserved and difference that isn't. Unfortunately, the long term trends in public opinion and the power of regulators make banks precarious investments.

[Guest Schwab711]

Make a new thread

[indirect]

+1

[valuefinder0525]

What Wells Fargo knew

Exclusive documents show a Wells Fargo employee informed the bank of fake customer accounts in 2006

 

https://news.vice.com/story/wells-fargo-bank-scandal?cl=fp

[DonFanucci]

We can discuss the validity of these ideas in a different thread but their existence is definitely pertinent to WFC. Inequality really entered mainstream thought with the Occupy Wall Street 99-1% movement, which was protesting the big banks. Now we are at a point where both political parties score points bashing the banks. Is this the end of the trend or should we expect public perception to continue to decline? Ultimately where is the end point? Belief in the inherent wrongness of difference between people is a growth industry right now. I have a hard time seeing even good banks as quality businesses when the following is true:

 

1) The government sets the price of your product

2) The government maintains control over every major business decision

3) Regulations are contradictory and unknowable

4) You never have the moral high ground

 

IMO #4+3 are underappreciated, and the inequality alarmism going on is strengthening #4. I think together they lead to higher size and frequency of settlements with the government. I think it will get harder and harder to handicap the outcome of negative publicity events such as this one (think OCN). I think the correlation of risk among banks is increasing. For example, WFC has a scandal and it becomes an indictment of all banks- the increased power of regulators and their incentive structure will cause them to crank down on other banks so they don't get caught overseeing the same problem twice. Finally, I think there's an underappreciated possibility of a total reset, whether that's breaking the banks up or nationalization or something else I don't know. Odds are in 10 years banking will look like it does today. But if the US encounters another severe economic event, banks will take the blame (regardless of truth) and politicians will use the opportunity to punish them. Maybe this is all in the price or maybe I'm over weighting these risks- I'm not sure. I just think the trends are clear.

[Grenville]

Stumpf is out!

[fareastwarriors]

Stumpf is out!

 

 

Wells Fargo CEO Stumpf retires effective immediately; Tim Sloan to take over

http://www.cnbc.com/2016/10/12/wells-fargo-ceo-stumpf-to-depart-dj-citing-source.html

[rb]

That was quick

[Guest notorious546]

Wells Fargo Chairman, CEO John Stumpf Retires; Board of Directors Elects Tim Sloan CEO, Director; Appoints Lead Director Stephen Sanger Chairman, Director Elizabeth Duke Vice Chair

Wednesday, October 12, 2016 09:04:00 PM (GMT)

 

Wells Fargo & Company (NYSE:WFC) announced today that Chairman and Chief Executive Officer John Stumpf has informed the Company’s Board of Directors that he is retiring from the Company and the Board, effective immediately. The Board has elected Tim Sloan, the Company’s President and Chief Operating Officer, to succeed him as CEO, and Stephen Sanger, its Lead Director, to serve as the Board’s non-executive Chairman, and independent director Elizabeth Duke to serve as Vice Chair. Sloan also was elected to the Board.

 

Sloan’s appointment to CEO and election to the Board are effective immediately. He will retain the title of President.

 

Sanger said, “John Stumpf has dedicated his professional life to banking, successfully leading Wells Fargo through the financial crisis and the largest merger in banking history, and helping to create one of the strongest and most well-known financial services companies in the world. However, he believes new leadership at this time is appropriate to guide Wells Fargo through its current challenges and take the Company forward. The Board of Directors has great confidence in Tim Sloan. He is a proven leader who knows Wells Fargo’s operations deeply, holds the respect of its stakeholders, and is ready to lead the Company into the future.”

 

Stumpf, a 34-year veteran of the Company, joined Wells Fargo in 1982 as part of the former Norwest Bank, becoming Wells Fargo’s CEO in June 2007 and its chairman in January 2010.

 

“I am grateful for the opportunity to have led Wells Fargo,” Stumpf said. “I am also very optimistic about its future, because of our talented and caring team members and the goodwill the stagecoach continues to enjoy with tens of millions of customers. While I have been deeply committed and focused on managing the Company through this period, I have decided it is best for the Company that I step aside. I know no better individual to lead this company forward than Tim Sloan.”

 

Sloan said, “It’s a great privilege to have the opportunity to lead one of America’s most storied companies at a critical juncture in its history. My immediate and highest priority is to restore trust in Wells Fargo. It’s a tremendous responsibility, one which I look forward to taking on, because of the incredible caliber of our people, and the opportunity we have to impact the lives of our millions of customers around the world. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.”

 

Sloan joined Wells Fargo 29 years ago, launching a career that would include numerous leadership roles across the Company’s wholesale and commercial banking operations, including as head of Commercial Banking, Real Estate and Specialized Financial Services. He became president and COO in November 2015, when he assumed leadership over the Company’s four main business groups: Community Banking, Consumer Lending, Wealth and Investment Management and Wholesale Banking. Previously, he headed the Wholesale Banking group after serving as the Company’s Chief Financial Officer and, prior to that, as the Company’s Chief Administrative Officer.

 

Sanger has been a member of the Wells Fargo Board since 2003, serving as its Lead Director since 2012. Sanger also chairs the Governance and Nominating Committee and is a member of Human Resources Committee and Risk Committee. He was CEO of General Mills, Inc., a leading packaged food producer and distributor, from 1995 until 2007. He served as chairman of General Mills from 1995 to 2008. He also serves on the board of Pfizer Inc.

 

Duke has been a member of the Wells Fargo Board since 2015. She served as a member of the Board of Governors of the Federal Reserve System from 2008 to 2013, where she served as Chair of the Federal Reserve’s Committee on Consumer and Community Affairs and as a member of its Committee on Bank Supervision and Regulation, the Committee on Bank Affairs, and the Committee on Board Affairs. She also previously held senior management positions at banks including Wachovia and SouthTrust.

 

About Wells Fargo

 

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,600 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 36 countries and territories to support customers who conduct business in the global economy. With approximately 268,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 27 on Fortune’s 2016 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially. Wells Fargo perspectives are also available at Wells Fargo Blogs and Wells Fargo Stories.

[Ballinvarosig Investors]

Well that explains Warren refusing to comment on Wells a few weeks ago, he was obviously trying to have Stumpf removed.

[Grenville]

Well that explains Warren refusing to comment on Wells a few weeks ago, he was obviously trying to have Stumpf removed.

 

He told CNBC that he had not spoken to the BoD back then, only Stumpf. That may have changed recently.

[vox]

My prediction is that the Board will go hard to try and recruit Richard Davis of U.S. Bancorp as its new CEO. He would be an excellent choice for shareholders.

[Mephistopheles]

Well that explains Warren refusing to comment on Wells a few weeks ago, he was obviously trying to have Stumpf removed.

 

My theory is that Buffett refused to comment, specifically until after the election, because it creates an awkwardness as he's endorsed HRC who took political advantage of the situation (along with everyone else). Would definitely be weird for him to defend and praise the company and Stumpf, and draw needless attention.

[Ballinvarosig Investors]

He told CNBC that he had not spoken to the BoD back then, only Stumpf. That may have changed recently.

As always with Buffett, you have to parse his words carefully.

"It's dead wrong to imply I've spoken to the board directly."

What he really meant. "I spoke privately with one or more members of the Board and we agreed that Stumpf had to go."

 

If you don't think Buffett could be so ruthless, then I suggest you give Doug Ivester a call. He got the exact same treatment from Buffett.

 

What's also interesting is that the coming Q results are out this Friday. This makes me feel like we there could be a nasty surprise in store....

[Grenville]

As always with Buffett, you have to parse his words carefully.

"It's dead wrong to imply I've spoken to the board directly."

What he really meant. "I spoke privately with one or more members of the Board and we agreed that Stumpf had to go."

 

Thank you for pointing that out and sharing the Doug Ivester link. I look forward to reading it.

 

You're right, he could have spoken to one or more members privately.

[KCLarkin]

If you don't think Buffett could be so ruthless, then I suggest you give Doug Ivester a call. He got the exact same treatment from Buffett.

 

What's also interesting is that the coming Q results are out this Friday. This makes me feel like we there could be a nasty surprise in store....

 

1. I believe when Buffett asked the fed to go beyond 10%, he claimed that he didn't plan to be involved in board matters. Board might have acted out of political necessity.

2. An internal call was leaked, suggesting that there weren't any financial surprises in this Q (other than extra legal costs). But it is interesting they took this action while the internal investigation was just getting started.

3. They didn't do any clawbacks for Tim Sloan. I took this as a pretty clear sign that they were going to elevate Sloan to CEO. They wanted to make sure his hands were clean.

[RadMan24]

Sloan right man at this time, imo. Gets the ball rolling to implement some changes and restore trust.

[Grenville]

I hate getting worked up over this, but I think the details here are worth listening to.

 

Planet Money Episode 728: "The Wells Fargo Hustle"

http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle

h/t txlaw

 

I hope the Wells Fargo board investigates these claims and if true clears the record of these folks and gives them some monetary restitution.

 

Also Tim Sloan gave a phone interview today to CNBC:

https://t.co/mp1NDYA3TI

 

Based on his answers, I'm pessimistic that he's the right leader to get WFC out of this mess. I feel like Wells needs an outsider to clean up the culture and restore trust. The earnings call should be good, I hope Mayo gets in some good questions. Maybe Sloan will get his moment in the light in front of the government.