WFC - Wells Fargo

[racemize]

Nice charts--Buffett has kept buying over the last few years, and those charts are compelling.  If it weren't for BAC, I'd probably have a lot more WFC.

[Liberty]

From brk letter:

 

 

 

A “non-real” amortization charge at Wells Fargo, however, is not highlighted by the company and never, to my knowledge, has been noted in analyst reports. The earnings that Wells Fargo reports are heavily burdened by an “amortization of core deposits” charge, the implication being that these deposits are disappearing at a fairly rapid clip. Yet core deposits regularly increase. The charge last year was about $1.5 billion. In no sense, except GAAP accounting, is this whopping charge an expense.

 

 

 

It makes me wonder, does BAC has the same thing?

[treasurehunt]

From brk letter:

 

A “non-real” amortization charge at Wells Fargo, however, is not highlighted by the company and never, to my knowledge, has been noted in analyst reports. The earnings that Wells Fargo reports are heavily burdened by an “amortization of core deposits” charge, the implication being that these deposits are disappearing at a fairly rapid clip. Yet core deposits regularly increase. The charge last year was about $1.5 billion. In no sense, except GAAP accounting, is this whopping charge an expense.

 

It makes me wonder, does BAC has the same thing?

As I understand it, any bank that has acquired core deposits will show the same charge. I couldn't find the amount of the core deposit intangible amortization charge in the 10-K though. The 10-K does show the value of the core deposit intangibles on the balance sheet (this is the stuff that gets amortized). Here are the 2012 numbers for WFC, BAC and JPM.

 

WFC: $5.9 billion

BAC: $0.7 billion

JPM: $0.4 billion

 

Given that BAC and JPM have fairly insignificant amounts of core deposit intangibles on the balance sheet, I'd guess that the amortization charge is not much of a factor.

[Mephistopheles]

Note 10 of WFC's latest 10-K, "Intangible Assets", shows that the company amortized $1.4 billion in core deposit intangibles in 2012. I am not sure how Buffett arrived at the $1.5 billion figure. WFC also amortized $286 million of "customer relationship and other intangibles". I don't know all of what that number accounts for, but it seems like the customer relationship amortization is also a silly GAAP measure, and perhaps that amounted to $100 million or so, to which we add the $1.4 billion to arrive at the $1.5 billion # that Buffett mentioned?

 

Can anyone else shed a light?

 

 

 

[Guest wellmont]

Note 10 of WFC's latest 10-K, "Intangible Assets", shows that the company amortized $1.4 billion in core deposit intangibles in 2012. I am not sure how Buffett arrived at the $1.5 billion figure. WFC also amortized $286 million of "customer relationship and other intangibles". I don't know all of what that number accounts for, but it seems like the customer relationship amortization is also a silly GAAP measure, and perhaps that amounted to $100 million or so, to which we add the $1.4 billion to arrive at the $1.5 billion # that Buffett mentioned?

 

Can anyone else shed a light?

 

note Buffett's language. he said About. 1.4 is 93% of 1.5.

[Mephistopheles]

Note 10 of WFC's latest 10-K, "Intangible Assets", shows that the company amortized $1.4 billion in core deposit intangibles in 2012. I am not sure how Buffett arrived at the $1.5 billion figure. WFC also amortized $286 million of "customer relationship and other intangibles". I don't know all of what that number accounts for, but it seems like the customer relationship amortization is also a silly GAAP measure, and perhaps that amounted to $100 million or so, to which we add the $1.4 billion to arrive at the $1.5 billion # that Buffett mentioned?

 

Can anyone else shed a light?

 

note Buffett's language. he said About. 1.4 is 93% of 1.5.

 

Hm, maybe, but usually he doesn't round that much.

 

From a learning perspective, I want to understand what the $286 million in customer relationship intangibles are, and if they should not count as a true expense either. Does anyone know?

[jose]

Looks like today's capital plan news release is vague on exactly how much they have increased their repurchase authority by.

 

Rough guess: If I use q4 2012 as a baseline, they purchased 48M shares back.  So if I annualize that up to about 200M shares per year and use today's price of 37, that puts it at about $7.4B per year as the baseline they will increase from.

 

It's a very rough guess. Wfc was cheaper then and I'm not sure how lumpy q4 was as far as repurchases.

 

Anyone have a better guess or info?

 

[Parsad]

Looks like today's capital plan news release is vague on exactly how much they have increased their repurchase authority by.

 

Rough guess: If I use q4 2012 as a baseline, they purchased 48M shares back.  So if I annualize that up to about 200M shares per year and use today's price of 37, that puts it at about $7.4B per year as the baseline they will increase from.

 

It's a very rough guess. Wfc was cheaper then and I'm not sure how lumpy q4 was as far as repurchases.

 

Anyone have a better guess or info?

 

They increased their dividend by a nickel every quarter as well.  Cheers!

[jose]

So if we assume a 20% increase to buybacks as well, we are looking at $9B of buybacks this year perhaps. That plus $6B in dividends puts us around $15B total.

[Parsad]

So if we assume a 20% increase to buybacks as well, we are looking at $9B of buybacks this year perhaps. That plus $6B in dividends puts us around $15B total.

 

I think that would be fair.  On a dollar for dollar basis relative to earnings and book value, the stock is cheaper right now than last year, so I can't see any reason why they would not buy back as many shares as last year...if not more!  Cheers!

[Kiltacular]

Going from memory, WFC has been buying back about 100 million shares per year -- not 200 million.  Someone double check me.

 

This amount has been enough to keep the sharecount constant.  A 20% increase would be another 20 million shares or so.  Not too exciting but at least a return.

 

Total capital return about $10 to $12 billion. 

 

That's without double checking the numbers.

 

Open to correction.

[jose]

I reread the press release, and it does say an in increase for "2013 compared to 2012".  So perhaps the 2012 total like Kiltacular proposes is a better baseline to go by than an annualized 4Q number.  Looking at the quarterlies, it appears they bought back 125M (7.6+53+16.5+48) shares in 2012. 

 

So by our 20% guess thats 150M shares or $5.5B repurchase in 2013.

 

Thats inline with what Kiltacular guess of $10B to $12B total.

[fareastwarriors]

Wells CEO Pay Is Tops Among Peers

 

http://online.wsj.com/article/SB10001424127887324392804578360790276078084.html?mod=WSJ_business_management

[valueinvesting101]

WFC also repurchased 35K warrants at 8.87. As per graph, it traded at those prices only on 11/14 and 11/15. They have been very stingy about buying these buy at cheap prices.

 

Buyback for last quarter for common was 42M.

 

 

[Grenville]

Saw this in the WSJ, short article linked below.

 

Pact between Amex & WFC on Amex new product called BlueBird (prepaid cards) that they introduced at Walmart.

 

Amex joined with Wells to get FDIC insurance on deposits through the Bluebird cards.

 

Prepaid Cards

AmEx, Wells in Card Pact

http://online.wsj.com/article/SB10001424127887324105204578384823308914266.html

or

search google for: "Financial Briefing Book: Mar. 27"

 

[Parsad]

Wells increases dividend 20%.  Cheers!

 

http://finance.yahoo.com/news/wells-fargo-company-announces-increased-200100651.html

[BRK7]

Wells increases dividend 20%.  Cheers!

 

http://finance.yahoo.com/news/wells-fargo-company-announces-increased-200100651.html

 

So, they've now moved the quarterly dividend to 30c.  The WFC warrants, I beleieve, get adjusted when the dividend tops 34c.  Getting closer...  ;D

[Hubris]

I honestly am having a tough time deciding between whether the warrants are good value at these prices or not... I mean relative to other warrants. I don't like the high dividend threshold essentially because almost every back pays exactly at the threshold so as a warrant holder I receive absolutely no benefit! It is also added to my cost of capital for holding the warrants. So essentially I am paying a $9 premium to current market price and forgoing a dividend of $1.20 per year (That dividend will eventually be $1.36). So essentially its 1.20 + 1.36(4) + 9= 15.64 to get the leverage. Again even if you discount the dividends at 6% which gives them a value of 5.51 So combining the premium and discounted dividend your cost is 14.51. Well I can see Wells is the bank but you are certainly paying for it in the warrants. The big question is: Is there a Margin of Safety?

[Phaceliacapital]

How likely is it that WF does not increase their dividend by more than 13% over a 5 year life period?

[Hubris]

Great company no doubt. Very cheap relatively speaking especially comparing historical price to tangible book. Banks are valued based on earnings not to book value. So huge MOAT for wells fargo. DEPOSITS + MORTGAGES! I just think there might be cheaper warrants out there.

[PLynchJr]

WFC right around a 10 year high today and trading for 1.4 book.  Starting to wonder if it isn't time to lighten up a bit.  Hard to find anywhere else to put the money though.

[Guest wellmont]

WFC right around a 10 year high today and trading for 1.4 book.  Starting to wonder if it isn't time to lighten up a bit.  Hard to find anywhere else to put the money though.

you may wish to revisit Buffett's view on whether book value is the proper metric to value wells fargo...

[dcollon]

Wells chief warns Fed over debt proposal

 

http://www.ft.com/cms/s/0/5e9d130c-cb76-11e2-8ff3-00144feab7de.html#axzz2V9ZR2rFL

[Libs]

I'll make my first post on one of my favorites.....

 

Ran some rough numbers on WFC this morning. I'm wondering what impact, say, a more normal, 4.5% 10-year rate would have on their earnings.

 

That's pretty much what the environment was in 2005, so I looked back.

 

Looking at their earning assets / funding sources report in Q1 2006, They were earning 8.01% on assets and paying 3.08% on their funding sources.

 

so NIM was 4.93%.

 

Today, WFC earns a paltry 3.86% on assets and pays .38%. So, NIM: 3.48%.

 

It's kind of scary to think it, but if NIM returns to 4.93% - and that's not out of line historically - WFC will earn an extra

(4.93-3.48) = 1.45% on current earning assets of $1.23 trillion.

 

That would add $17.8 B to pre-tax income. Using Brooklyn investor's 10X pre-tax Buffett valuation, you're talking about

$178 B increased market cap, or 82% above today. Or about $32 per share more.

 

I also notice WFC currently has $121B, or 10% of it's earning assets, earning just .36% in the category of "federal funds sold, securities purchased under resale agreements and other chort-term investments."

 

In 2006, they only had 1.5% of their earning assets in that category (and earned 5.19% there, lol).

 

I can see why Stumpf talks so eagerly about putting more $$ to work....

 

I'm no bank expert but maybe this is one reason Buffett's appetite for WFC is insatiable. They have tremendous leverage to rising interest rates. I guess the market agrees, judging by how well lenders are faring recently, vs say, GS.

 

Is it really this simple, or am I missing something?

 

Love this site - thanks to all for contributing.

 

 

 

 

 

 

[JBird]

A wonderful post Libs