WFC - Wells Fargo

[dutchman]

Is it sensible to keep holding at this level?  It was trading even higher a year ago, but Im worried that theyve lost their pristine reputation.  Also to what extent will a trump admin ease the regulatory backlash?  Theres a new story about how wells was signing up ppl for prudential insurance without telling them!! Such assho**s.

[Dynamic]

For my sell strategy I guess it's a call whether the investment thesis has changed and the company is significantly different from what you thought it was.

 

To me, I think it's close enough that I'd hold. I guess if it were a large position, I'd be more nervous.

 

Yes, I'm somewhat concerned about the reputation damage, but I'm thinking it doesn't outweigh a lot of people's positive impressions (especially compared to certain other banks) and their generally sound banking practices, plus a likely friendlier regulatory environment in the near future. It's about 20% up on my May 2016 buy price plus dividends but still not very expensive.

 

Long term shareholder return positives:

The buyback program (1.4% bought back in last 6 months or so);

Dividends ($1.52/yr and likely to grow at a comfortable rate per share that should support an increasing stock price over time in the same way that the reducing share count will boost EPS and BVPS and do the same)

 

These are encouraging for shareholder returns, and at current prices, I still think buybacks are value-enhancing even if less so than when it was priced in the $40s.

 

For now, I'm happy to hold and unless something changes I'd sell in the near term only if I had a very much cheaper buying opportunity in another stock, especially a high conviction position. My direct exposure is 5.3%, but my total exposure is about 9.5% including my share of Berkshire Hathaway's holdings, and I'm happy with this level at this price. Bear in mind I tend to run a VERY concentrated portfolio by most people's standards, so I consider this modest exposure even if it's my 3rd largest position.

 

I don't know if this makes me a fool or not, but that's my personal thinking. Your mileage may vary.

[Ballinvarosig Investors]

Q4 results out, $0.96 EPS versus $1 expected.

[Ballinvarosig Investors]

Q4 results out, $0.96 EPS versus $1 expected.

I was initially a little annoyed, but going into the detail, I am more optimistic. Earnings would have been $1.03 but for some currency hedging exercise that went wrong. Someone dropped the ball there, but it's fixable. The important thing is that deposits and loans are both up - all the scaremongering about customers deserting Wells turned out to be just that.

[rb]

Q4 results out, $0.96 EPS versus $1 expected.

I was initially a little annoyed, but going into the detail, I am more optimistic. Earnings would have been $1.03 but for some currency hedging exercise that went wrong. Someone dropped the ball there, but it's fixable. The important thing is that deposits and loans are both up - all the scaremongering about customers deserting Wells turned out to be just that.

Yep and judging by the open that expectation estimate was off.

[KCLarkin]

Someone dropped the ball there, but it's fixable.

 

I don't think that is an accurate description. I think this is more akin to a mark-to-market loss. In some ways, this is just unwinding gains they made earlier in the year. WFC knows the hedges aren't perfect. But when you look at how stable their earnings are, I would say the hedges are very effective over time.

[DooDiligence]

A short term earnings miss with a long term float (too bad there's no pullback for anyone wanting to add big...)

[fareastwarriors]

...why...

 

 

Bank branches were given a heads up before Wells Fargo’s internal monitors landed for inspections.  Branch employees in the retail bank used notice periods of 24 hours to 72 hours to falsify records and forge customer signatures

http://www.wsj.com/articles/at-wells-fargo-bank-branches-were-tipped-off-to-inspections-1485253800

[rb]

$110 Million settlement for the fake accounts. Not bad.

 

https://www.bloomberg.com/news/articles/2017-03-28/wells-fargo-reaches-110-million-settlement-over-fake-accounts

[SlowAppreciation]

https://www.wsj.com/articles/berkshire-hathaway-to-sell-nine-million-wells-fargo-shares-1492034950

[rb]

Yes it seems like the talks with the Fed did not go well. I'm guessing that they have to sell some stock to make room for WFC buybacks.

[sleepydragon]

So the more wells buy back stock, the more web has to sell?!

That's rediculus!

 

[rb]

Basically... or he goes over the 10% threshold. So they basically have to sell 10% of the WFC buyback.

[boilermaker75]

Maybe part of the reason WFC stock has been under pressure the last two days. Not complaining I have taken advantage and written some puts.

[John Hjorth]

So the more wells buy back stock, the more web has to sell?!

That's rediculus!

 

I tried to read up a bit what this was about, and I found Comptrollers Licensing Manual: Change in Bank Control, Washington DC, 2007. Especially the considerations on p. 5 & 6 makes sense to me, and naturally apply also to Berkshire with regards to WFC.

[fareastwarriors]

Another half of a billion to the pile!

[rb]

Yea, stock's getting smacked today.

[sleepydragon]

Added today.

I like to buy when there's a forced seller  :P

[Viking]

The next year for WFC will be bumpy. Expenses in the most recent quarter came in quite high and management confirmed costs will remain elevated for the near term. It would not be surprising for regulators to give WFC a fail on the qualitative aspect of CCAR and regulators may find more to be unhappy about. This will result in minimal profit growth over the next year.

 

The good news is it looks to me like the issues WFC is facing are largely transitory. Looking out to next year we should see WFC put the retail sales scandal behind it, expenses should come down and regulatory headwinds should relax. We should see the strength of its businesses come through. WFC will be hosting an investor day in May and said on the quarterly conference call they will be presenting a plan to get their expense ratio back in line; this will be an important test for management.

 

With the stock closing today at $51.35 lots of the bad news looks to be baked in. Looking out 12 months lots of potential tail winds to drive the stock higher.

[walkie518]

I have first hand knowledge that the other big banks (and small banks) have been eating Wells' lunch ... over the last year or two, I've seen a slowdown in what and how they lend to existing clients.  How Wells handles credit has also changed (likely in light of the fake cards) that has gotten in the way of allowing me to open accounts I have wanted opened.

 

Mortgage origination was worse than expected...  JP Morgan, on the other hand, has outperformed on this front.

 

A buyer today might see this as an opportunity to deploy in light of the Berkshire sales.  At the same time, since the election, bank stocks have knocked the cover off of the ball.  Will there be some mean reversion as less of what was promised takes longer and longer to come to fruition, if at all? 

 

Over the next decade, owning WFC seems like a no-brainer, but I would argue there might be a number of short-term catalysts to the downside.

 

[Viking]

Walkie, I agree Wells is facing a number of short term headwinds:

1.) incremental costs associated with retail sales scandal

2.) incremental costs to satisfy regulators (they seem to be behind the curve on this compared to the other big banks)

3.) do they pass living will with resubmission

4.) do they fail upcoming CCAR on qualitative side; if so does this impact capital return in 2017-18?

5.) when do expenses come back down? 2018? Or will it be 2019?

6.) how good is the new leadership? How good is Tim Sloan?

 

In the next 6 months what happens to the yield on 10 year treasuries will also be important. Today they are at 2.25% which appears crazy low. If 10 year girls move higher (closer to 2.6%) then this will provide Wells with some breathing room with elevated expenses.

 

I think the May investor day will be quite important as it will provide some incremental answers to the above questions.

 

 

[Spekulatius]

Walkie, I agree Wells is facing a number of short term headwinds:

1.) incremental costs associated with retail sales scandal

2.) incremental costs to satisfy regulators (they seem to be behind the curve on this compared to the other big banks)

3.) do they pass living will with resubmission

4.) do they fail upcoming CCAR on qualitative side; if so does this impact capital return in 2017-18?

5.) when do expenses come back down? 2018? Or will it be 2019?

6.) how good is the new leadership? How good is Tim Sloan?

 

In the next 6 months what happens to the yield on 10 year treasuries will also be important. Today they are at 2.25% which appears crazy low. If 10 year girls move higher (closer to 2.6%) then this will provide Wells with some breathing room with elevated expenses.

 

I think the May investor day will be quite important as it will provide some incremental answers to the above questions.

 

I also expect a significant increase in provisioning down the road, especially if interest rates keep rising. Right now, provisioning is very low/nonexistent. I expect that most of the windfall from higher interest rates will go into provisioning expenses.I don't think they WFC at 13x earnings is such a bargain here, especially at this point in the cycle.

[Viking]

Spekulatius, are you anticipating a US recession? I like to follow calculated risk blog to help me understand how the US economy is performing; currently he is forecasting GDP growth in 2017 of mid to high 2%. The link provides a Q1 update to his 10 economic questions: http://www.calculatedriskblog.com/search?updated-max=2017-04-12T21:14:00-04:00&max-results=10

 

The wild cards are interest rates and Trump. My guess is 10 year treasuries at 2.25% are close to bottoming; should 10 year yields move higher (back towards 2.6% or perhaps even higher closer to 3% as Gundlach has discussed) then Wells Fargo will be in position to grow NII even more (as it reinvests at higher yields). Expectations regarding Trump have also come way down over the past month. I think Trump will find a way to deliver on a few of his promises and this will be positive for sentiment later in the year.

 

My guess is as long as the US economy continues to chug along WFC will continue to earn +$5 billion per year. The dividend yields 3% and they will repurchase 2% of shares outstanding over the next 12 months and tangible book value should grow 5-7%.

 

[Spekulatius]

I don't expect a recession in 2017 but perhaps in 2018 or 2019. In any case, I think we are getting closer to the end of this economic upcycle. The zero LL provisions that many banks have been experiencing are not sustainable and at some point, the LL provisioning habe to normalize, even if we do not have a recession.

 

The scenario that you are providing for WFC with a 3% dividend, 2 % buybacks and perhaps a 5% book value growth only provides about a 10% annual  appreciation potential. For a best case scenario, that I rather slim, imo.

[sleepydragon]

Added today.

I like to buy when there's a forced seller  :P

 

http://mobile.reuters.com/article/idUSKBN17J1BQ

 

disclaimer: i am not the CEO nor chairman (although it appears he bought last week too!) haha