WFC - Wells Fargo

[DooDiligence]

Not sure if this belongs here or in a BRK thread (or in the trash).

 

Wells Fargo exec says he was wrongly fired over Warren Buffet-backed Burger King deal

 

https://www.charlotteobserver.com/news/business/banking/article232733167.html

 

---

 

Is it anything?

[Viking]

WHY is it that WFC still does not have a CEO?

 

As an example, at DANSKE it took a long time, too. When the headhunter introduces a potential subject for the position to the chairman, and a meeting for conversation is set up, the potential subject has by far more questions for discussion to the chairman than the other way around. Such a setup can be highly annoying, and thereby counterproductive.

 

Wells Fargo CEO seat is basically “radioactive”. Not many candidates wants to deal with Congress , politicians, regulators while running a business at the same time. This will whittle down the pool of candidates significantly.

 

Yeah, you know why is a person supposed to work for $20M salary or such? $20M positions should come with no duties attached. Just the private jets, soirees, and golf clubs please.

 

Somehow the "radioactive" positions that involve dealing with disgruntled customers threatening bodily harm, hey even dealing with convicted felons get filled at wages closer to minimum wage. But that's for schmucks. The CEO caste is different. All hail the CEOs and shower money on them.

 

It just could be that WFC may be having trouble filling its CEO position because the issues at the bank are still more serious than generally understood. Over the last 2.5 years there has been a steady stream of negative press. Perhaps the CEO vacancy is saying more about the issues at WFC than the character of the CEO candidates who are not interested.

[Jurgis]

WHY is it that WFC still does not have a CEO?

 

As an example, at DANSKE it took a long time, too. When the headhunter introduces a potential subject for the position to the chairman, and a meeting for conversation is set up, the potential subject has by far more questions for discussion to the chairman than the other way around. Such a setup can be highly annoying, and thereby counterproductive.

 

Wells Fargo CEO seat is basically “radioactive”. Not many candidates wants to deal with Congress , politicians, regulators while running a business at the same time. This will whittle down the pool of candidates significantly.

 

Yeah, you know why is a person supposed to work for $20M salary or such? $20M positions should come with no duties attached. Just the private jets, soirees, and golf clubs please.

 

Somehow the "radioactive" positions that involve dealing with disgruntled customers threatening bodily harm, hey even dealing with convicted felons get filled at wages closer to minimum wage. But that's for schmucks. The CEO caste is different. All hail the CEOs and shower money on them.

 

It just could be that WFC may be having trouble filling its CEO position because the issues at the bank are still more serious than generally understood. Over the last 2.5 years there has been a steady stream of negative press. Perhaps the CEO vacancy is saying more about the issues at WFC than the character of the CEO candidates who are not interested.

 

As much as I rant about the CEO characters, I think that Spekulatius' theory is correct. Perhaps a bit modified by insiders/board feeling no big urgency to fill CEO position. What's the hurry if the bank is doing fine?

 

Regarding your theory: candidates may assume that the issues at the bank are more serious than generally understood. It's unlikely they know this for sure. I doubt that hiring committee discloses the size of potential issues to candidates except perhaps in very general terms. Which may scare (some) candidates more than warranted.

 

IMO Wells would do just fine to either keep the acting CEO until fear subsides or take an acceptable (though possibly not "ideal") candidate who's not chicken enough to wade in.

 

Doesn't change my rant opinions though.  8)

[meiroy]

WHY is it that WFC still does not have a CEO?

 

As an example, at DANSKE it took a long time, too. When the headhunter introduces a potential subject for the position to the chairman, and a meeting for conversation is set up, the potential subject has by far more questions for discussion to the chairman than the other way around. Such a setup can be highly annoying, and thereby counterproductive.

 

Wells Fargo CEO seat is basically “radioactive”. Not many candidates wants to deal with Congress , politicians, regulators while running a business at the same time. This will whittle down the pool of candidates significantly.

 

Yeah, you know why is a person supposed to work for $20M salary or such? $20M positions should come with no duties attached. Just the private jets, soirees, and golf clubs please.

 

Somehow the "radioactive" positions that involve dealing with disgruntled customers threatening bodily harm, hey even dealing with convicted felons get filled at wages closer to minimum wage. But that's for schmucks. The CEO caste is different. All hail the CEOs and shower money on them.

 

It just could be that WFC may be having trouble filling its CEO position because the issues at the bank are still more serious than generally understood. Over the last 2.5 years there has been a steady stream of negative press. Perhaps the CEO vacancy is saying more about the issues at WFC than the character of the CEO candidates who are not interested.

 

+1

[mountboney]

The CEO process is more complicated than normal as the candidate must be unofficially approved by Buffett and the bank regulators in addition to the BOD. It will take a while to do it properly.

[DooDiligence]

The CEO process is more complicated than normal as the candidate must be unofficially approved by Buffett and the bank regulators in addition to the BOD. It will take a while to do it properly.

 

and meanwhile, the doors are still open & people are moving money around.

[RuleNumberOne]

WFC is a simple, very-wide-moat business, Buffett & Munger's all-time favorite. I just don't think the CEO is that important here:

 

1. Munger's largest position at DJCO forever.

2. Buffett's only big purchase in 2006-2007 at around $35 per share, has been invested since 1989.

3. Buffett's largest investment for some years after the 2008 crisis, kept buying it even at its current $46 price.

4. Buffett said in or around March 6, 2009 that if he had to put all his net worth into one investment that day, it would be WFC.

5. Buffett said on CNBC that he picked 2 out of 4 CEO names shown to him by the WFC Chairman. If a CEO was that urgent, Buffett would have made them hire someone.

 

From my point of view:

1. WFC gives the best customer service in the branch. Customers get pampered because there are 3x the number of tellers at other banks.

2. Customers have always known WFC employees want to open as many checking account as possible, even cancel existing ones and replace with new ones. This is not news to them (has been that way for 20 years), they can't understand why Elizabeth is so upset about their favorite bank.

3. Checking account customers keep growing every quarter at WFC.

4. Retail deposits keep growing every quarter at WFC.

5. Elizabeth Warren trying to impress the 40% of American households served by WFC. Instead she comes across as completely unhinged to the typical American.

6. I have been a loyal customer for a very long time. Currently has the most honest mortgage brokers by far, compared to other banks.

 

When Europe comes apart, IMO WFC/USB/PNC/MTB will be the ones without European exposure (I hope!). Though I am a BAC customer and trade it sometimes, BAC is involved in buying bad assets from bailed out Monte Paschi (17% non-performing loans, completely crooked accounting etc)!

 

I just feel much safer with WFC even without a CEO. It could have bought Lehman, Bear or ML during the crisis, but chose to stick with its knitting and bought Wachovia.

[RuleNumberOne]

The only thing that would scare me is if we have a housing bubble (WFC is the largest home mortgage lender), but today we are very far away from it:

 

https://www.bloomberg.com/news/articles/2019-07-17/close-to-40-of-u-s-homes-are-free-and-clear-of-a-mortgage

 

"About 37% of U.S. households are “free and clear,” meaning they no longer have a home mortgage to pay, according to a Zillow data analysis. "

 

 

Equity rich is defined in this article as loan-to-value < 50% :

 

https://www.prnewswire.com/news-releases/equity-rich-us-properties-increase-to-new-high-of-14-5-million-in-q3-2018--300745870.html

 

(I think WFC is the major bank for the west coast?, 3 of the top 5 states are West Coast)

 

"Highest equity rich share in California, Hawaii, Washington, New York, Oregon

States with the highest share of equity rich properties were California (42.5 percent); Hawaii (39.4 percent); Washington (35.3 percent); New York (34.9 percent); and Oregon (33.6 percent).

 

Among 7,290 U.S. zip codes with at least 2,500 properties with mortgages, there were 417 zip codes where more than half of all properties with a mortgage were equity rich.

 

The top five zip codes with the highest share of equity rich properties were all in the California Bay area: 94087 in Sunnyvale (87.1 percent equity rich); 94085 in Sunnyvale (86.7 percent equity rich); 94086 in Sunnyvale (86.7 percent equity rich); 94063 in Redwood City (85.9 percent equity rich); and 95130 in San Jose (85.7 percent equity rich)."

 

 

[John Hjorth]

The CEO process is more complicated than normal as the candidate must be unofficially approved by Buffett and the bank regulators in addition to the BOD. It will take a while to do it properly.

 

mountboney,

 

What do you base that claim/statement on?

[samwise]

Safest 10.5% current earnings yield on a GDP grower. Even 14% maybe when they resolve their temporarily elevated costs.

 

How big a portion of your portfolio is this? Can it be 25%, 40%?

[chompsterama]

Safest 10.5% current earnings yield on a GDP grower. Even 14% maybe when they resolve their temporarily elevated costs.

 

How big a portion of your portfolio is this? Can it be 25%, 40%?

 

Read this mornings WSJ article "Families Go Deep in Debt to Stay in the Middle Class" and you might think hard about a 40% position.

[Viking]

Safest 10.5% current earnings yield on a GDP grower. Even 14% maybe when they resolve their temporarily elevated costs.

 

How big a portion of your portfolio is this? Can it be 25%, 40%?

 

Samwise, the big US banks have been a great investment for years. My challenge with having a big overweight position today is what happens if the US enters a recession in 2020? Earnings estimates for WFC for 2020 have come way down in the past 90 days due to what has happened to the yield curve (and WFC guiding to lower NII). If the US economy continues to chug along at 2% growth then WFC will do very well.

[RuleNumberOne]

Viking,

 

The US will not go into recession with a fiscal deficit of 5% of GDP at the Federal level and states getting into spending of their own.

 

California (1/8th of US population and WFC's home ground) has a big budget surplus and has started digging up roads everywhere because they have to spend the money somehow. Even with all that digging, the surplus was so large that California also added to their rainy day fund.

 

Far cry from Italy which has set a budget deficit of 2% with 33% youth unemployment.

[John Hjorth]

Viking,

 

The US will not go into recession with a fiscal deficit of 5% of GDP at the Federal level and states getting into spending of their own. ...

 

Again, I-really-don't-know-for-what-time, RuleNumberOne,

 

What is your basis for posting this here on CoBF?

[koshigoe]

even on CoBF, an ostensible bastion of rational thought, few are very bullish on wells, which makes me like the investment even more!

 

every trading day $100 mil+ worth of shares is vacuumed up by wells, well over 6 bil this quarter, and 6 bil the next.

 

Earnings estimates for WFC for 2020 have come way down in the past 90 days due to what has happened to the yield curve (and WFC guiding to lower NII).

really? even with two rate cuts (50 bp) it's about a 200mil hit to NII, see the Q2 call. Peanuts. And wells is way over 60% non interested expense, a way out of whack ratio. When this is fixed next year or 2021 will free up a few bil to the bottom line.

 

So even with rock bottom rates and some hand wringers waving the red flag, wells is pounding out 20 bil+ a year. Also if you read an interview with the controller, Wells will probably flip to higher dividend payouts in 2020 CCAR cycle vs buybacks, so that will be a 5% div next year at present prices.

 

Even if things go to hell so they can vacuum up more shares at $40.

 

You got to remember, wells has ~40 mil customers. What and you read about in the paper probably aren't Well's customers. Harsh fact, but fact nonetheless. Sure if America is taken down a notch in the world, and we get recession, everything will be hurt, but remember Wells was profitable all through 2008 even when they had Wachovia rammed down their throat and had to issue shares in a phony unneeded bailout. Thanks Paulson.

 

But hey, I'll sell you (some) of my shares at $60 when you get comfortable!

 

[Viking]

Koshigoe, my comments regarding WFC were directed more at is this a good time to allocate 25 or even 40% of your portfolio into WFC. I agree with you that WFC is cheap at current prices. I almost bought some today; bought BRK instead.

 

PS: What happns to big bank profitability if US 10 year yields go negative in the next year or two? Not a likely scenario; but no one predicted the US 10 year would implode from 3.25 to 1.9% in less than 9 months. Everyone is trying to depreciate their currency. Trump wants lower rates and a lower currency.

[RadMan24]

Remember, a lot of investors got out because of the continued onslaught of negative news, and blaming management for not fixing the issue. Sequoia fund was one of them. Then, Buffett and Munger come out that Sloan was the right guy right before and after he was let go. Whoops! So, now you have a bank without a clear succession plan, but is turning the tide and fixing underlying issues. Next CEO is important, but they should just stick with the guy running the show until they find the right person.

 

Buffett also mentions one interesting statistic with respect to WFC is that customer deposits continue to grow. It's been a while since news wires were negative on WFC. Also, WFC bread and butter home mortgages and being conservative with its loans. The asset cap inherently emphasizes this point. An upcoming recession would benefit WFC in this regard, particularly if the asset cap is let go before then. i.e. the bank is back on its feet and running full strength with quality assets.

 

Tidbit from March:

https://www.bankrate.com/personal-finance/wells-fargo-under-fire-customer-deposits-grow-anyways/

 

[samwise]

Koshigoe, my comments regarding WFC were directed more at is this a good time to allocate 25 or even 40% of your portfolio into WFC. I agree with you that WFC is cheap at current prices. I almost bought some today; bought BRK instead.

 

PS: What happns to big bank profitability if US 10 year yields go negative in the next year or two? Not a likely scenario; but no one predicted the US 10 year would implode from 3.25 to 1.9% in less than 9 months. Everyone is trying to depreciate their currency. Trump wants lower rates and a lower currency.

 

Viking, are you recommending a reduced allocation to WFC be allocated to a different stock, or cash? Won’t any other stock also suffer in a recession, both in stock prices and profits? And with cash you suffer if there is no recession. So I don’t quite follow your reasoning.

 

As for the extreme scenario of US following Japan, again I am not sure which alternative stock you would rather own?

[koshigoe]

PS: What happns to big bank profitability if US 10 year yields go negative in the next year or two? Not a likely scenario; but no one predicted the US 10 year would implode from 3.25 to 1.9% in less than 9 months. Everyone is trying to depreciate their currency. Trump wants lower rates and a lower currency.

negative US yields are quite a long way from current rates. We were at 0 bound yields for over half a decade, and wells and the other banks made lots of money. And during those years the banks became much stronger with less leverage and the world grew itself out of the housing mess. Wells is buying back net 20+ bil a year, paying out 8+bil a year in divs, and still not making a dent in its capital ratio.

 

Also, if we go to 0 yields again, then stocks will be valued higher...what is a 4.5% yield worth in that environment? It only takes them 10 bil in earnings to cover that. Wells should shoot higher under either macro condition, higher or lower rates.

[Viking]

PS: What happns to big bank profitability if US 10 year yields go negative in the next year or two? Not a likely scenario; but no one predicted the US 10 year would implode from 3.25 to 1.9% in less than 9 months. Everyone is trying to depreciate their currency. Trump wants lower rates and a lower currency.

negative US yields are quite a long way from current rates. We were at 0 bound yields for over half a decade, and wells and the other banks made lots of money. And during those years the banks became much stronger with less leverage and the world grew itself out of the housing mess. Wells is buying back net 20+ bil a year, paying out 8+bil a year in divs, and still not making a dent in its capital ratio.

 

Also, if we go to 0 yields again, then stocks will be valued higher...what is a 4.5% yield worth in that environment? It only takes them 10 bil in earnings to cover that. Wells should shoot higher under either macro condition, higher or lower rates.

 

Koshigoe, i do admit that i do not understand much of the marco themes that are currently in play. We have been reading for years that negative rates in much of Europe are the key reason the big banks there are not performing well and continue to be undercapitalized (not having fully dealt with the issues from the housing crisis). I continue to wonder what will happen to US banks if the US 10 year yield goes negative; my guess is it will reduce their profitability. Negative bond yields in Europe have done little to impact PE investors are prepared to pay for European stocks. Crazy times, and it looks like we are just getting started...

 

I do like WFC and will likely buy should we see more weakness in stocks moving forward :-)

[DooDiligence]

PS: What happns to big bank profitability if US 10 year yields go negative in the next year or two? Not a likely scenario; but no one predicted the US 10 year would implode from 3.25 to 1.9% in less than 9 months. Everyone is trying to depreciate their currency. Trump wants lower rates and a lower currency.

negative US yields are quite a long way from current rates. We were at 0 bound yields for over half a decade, and wells and the other banks made lots of money. And during those years the banks became much stronger with less leverage and the world grew itself out of the housing mess. Wells is buying back net 20+ bil a year, paying out 8+bil a year in divs, and still not making a dent in its capital ratio.

 

Also, if we go to 0 yields again, then stocks will be valued higher...what is a 4.5% yield worth in that environment? It only takes them 10 bil in earnings to cover that. Wells should shoot higher under either macro condition, higher or lower rates.

 

Thanks for your past half dozen posts.

 

and thanks to all who gave pushback.

 

I like WFC & believe the stink will eventually wear off.

[no_free_lunch]

I like WFC here and will increase my position shortly. As for why not go all in, there are just other bank stocks that are cheap.  Why take the risk when it's just banking in general that's out of favor. 

[DooDiligence]

WFC shakes down tech vendors.

 

https://www.wsj.com/articles/wells-fargo-to-tech-vendors-please-send-us-a-check-11564756857

[DooDiligence]

How many of these are they issuing & why won't they list on public exchanges if they're selling them in such small increments?

 

http://archive.fast-edgar.com//20190823/A3Z2K22CZ22H52IW222C2WZ2AKMMFZ27Z2B2/

 

Not sure if the answers to my questions are even important.

 

I'm just curious.

[chompsterama]

How many of these are they issuing & why won't they list on public exchanges if they're selling them in such small increments?

 

http://archive.fast-edgar.com//20190823/A3Z2K22CZ22H52IW222C2WZ2AKMMFZ27Z2B2/

 

Not sure if the answers to my questions are even important.

 

I'm just curious.

All banks issue structured products continuously.  Almost none have liquidity.  Mostly sold via their financial advisors/WM units.