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WFC - Wells Fargo

Viking

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Kraven Newbie

Kraven

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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.

 

There is nothing special about Wells Fargo in this regard. There is nothing wrong with your post but you've essentially set out the bullish case which is applicable to the banking sector in general. All else being equal the expectation is that the sequence of events you set out will apply to any number of banks. Welcome to the board.

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fareastwarriors Newbie

fareastwarriors

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http://www.bloomberg.com/news/2013-07-12/wells-fargo-profit-rises-19-as-stumpf-renews-focus-on-expenses.html

 

 

Wells Fargo & Co. (WFC), the largest U.S. home lender, said second-quarter profit climbed 19 percent as the bank clamped down on expenses. Results beat analysts’ estimates, and the shares rose 1.7 percent in New York trading.

 

Net income advanced to a record $5.52 billion, or 98 cents a share, from $4.62 billion, or 82 cents, a year earlier, the San Francisco-based company said today in a statement. The average estimate of 33 analysts surveyed by Bloomberg, excluding some items, was 93 cents a share

 

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dcollon Newbie

dcollon

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Wells Fargo to Acquire Hypothekenbank Frankfurt UK Commercial Real Estate Portfolio from Commerzbank

Monday, July 15, 2013 09:55:00 AM (GMT)

 

 

Wells Fargo & Company (NYSE: WFC), the leading commercial real estate lender in the U.S., has signed an agreement to acquire Commerzbank’s Hypothekenbank Frankfurt (formerly Eurohypo) U.K. commercial real estate portfolio. The transaction includes a £4.0 billion ($6.05 billion) portfolio of commercial real estate loans comprised of high-quality institutional assets throughout the U.K. with a focus in London. A portion of the portfolio, consisting of approximately £1.3 billion ($1.96 billion) of non-performing assets, will be acquired by Lone Star Funds, with Wells Fargo providing the financing. The transaction is expected to close in Q3 2013.

 

“This transaction, in combination with Wells Fargo’s long standing real estate expertise, will help create a best-in-class commercial real estate platform in the U.K.,” said Bill Vernon, executive vice president and group head who led the acquisition team for Wells Fargo Commercial Real Estate. “Hypothekenbank Frankfurt’s 20-year history in London, their recognition as a market leader in the commercial real estate industry, and our similar approaches to building quality assets and providing outstanding client service all add up to a great strategic expansion opportunity for Wells Fargo’s U.K. Commercial Real Estate business.”

 

Upon completion of the transaction, Wells Fargo will name Hypothekenbank Frankfurt industry veteran, Max Sinclair, as head of its London Commercial Real Estate office. In addition, Mike Acratopulo, Hypothekenbank Frankfurt’s managing director and head of origination, and a number of other Hypothekenbank Frankfurt employees are expected to become Wells Fargo team members, with most of those joining the London Commercial Real Estate team. Upon joining Wells Fargo, Sinclair will report to Chip Fedalen, executive vice president and group head who currently oversees Wells Fargo’s U.K. Commercial Real Estate operation and reports to Mark Myers, head of Commercial Real Estate at Wells Fargo. As part of the transaction, the Hypothekenbank Frankfurt office space at 90 Long Acre will become Wells Fargo’s new U.K. Commercial Real Estate headquarters.

 

“Given Wells Fargo’s position as the number one commercial real estate lender in the U.S. and our recent expansion of commercial real estate services in the U.K., this transaction is a significant investment in the future growth of our U.K. platform,” said Myers. “Max’s deep industry expertise and knowledge of the U.K. market will add significant strength to our Commercial Real Estate platform and we look forward to having him and the other outstanding Hypothekenbank Frankfurt team members join our Wells Fargo team in London.”

 

Serving both our corporate and commercial customers with approximately 700 team members throughout Europe, Wells Fargo’s primary European business lines include Global Financial Institutions, Global Banking, Global Transaction Banking, Capital Finance, Commercial Real Estate, Corporate Trust, Asset Management and Securities.

 

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fareastwarriors Newbie

fareastwarriors

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http://online.wsj.com/article/SB10001424127887324619504579027251867964752.html?mod=WSJ_business_MoreArticles

 

Wells Fargo Cuts Jobs in Mortgage Unit

 

Bank Trims 2,300 Positions as Wave of Refinancing Ebbs.

 

Wells Fargo WFC -0.54%& Co. said Wednesday it is cutting 2,300 mortgage-related jobs across the country as a refinancing boom that helped spur profits continues to wane.

 

The fourth-largest U.S. bank by assets provided a 60-day notice of displacement to 2,300 employees in its home-lending unit, based in Des Moines, Iowa.

 

 

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jay21 Newbie

jay21

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http://www.economist.com/news/finance-and-economics/21586295-big-winner-financial-crisis-riding-high

 

"Two banks vie for the title of the world’s biggest by market capitalisation. One is Wells Fargo, a San Francisco-based institution; the other is China’s state-owned ICBC. It says something about the state of global finance that both are largely domestic, conventional lenders, and that both are buoyed and buffeted by the policies of their respective governments."

 

"As panic consumed the markets, it gazumped Citigroup to acquire Wachovia, which had been assembled over decades of costly and disruptive mergers. It may have been the best bank acquisition ever. In a single move, Wells doubled its branch count and added the eastern half of the country. As John Stumpf, the chief executive, likes to point out, a Wells branch or ATM is now within two miles of half of America’s homes and half of its firms."

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fareastwarriors Newbie

fareastwarriors

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https://www.wellsfargo.com/downloads/pdf/press/3q13pr.pdf

 

 

Net income advanced in the third quarter to a record $5.58 billion, or 99 cents a share, from $4.94 billion, or 88 cents, a year earlier, the San Francisco-based company said today in a statement. The bank reclaimed $900 million from loan-loss reserves while mortgage banking revenue plunged 43 percent.

 

 

 

The bank reported declines in revenue, lending margins and the backlog of new mortgage loans. The efficiency ratio, which measures costs as a percentage of revenue, rose to 59.1 percent, missing the firm’s target of 55 percent to 59 percent. Noninterest expenses were little changed at $12.1 billion.

 

Revenue fell 3 percent to $20.5 billion. Profit before taxes and loss provisions, which some analysts use to gauge the bank’s core performance, declined 8 percent to $8.38 billion. Net interest margin, the difference between what a bank makes on lending and what it pays for funding, fell to 3.38 percent, a 0.08 percentage point drop from the second quarter.

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benchmark Newbie

benchmark

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"In the third quarter, for every dollar in loans and deposits—our assets—we made about $1.53 or $1.55 after taxes. That’s right up there with what we did prerecession. On the other hand, our return on equity was 14.07 percent. We used to have a return on equity in the 20 percent range."

 

He seems to imply unless the regulation loosen up, ROE would not improve? I aslo wonder if this is true for jpm or bac.

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ERICOPOLY Newbie

ERICOPOLY

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Is it regulation or slowing demand for credit? He mentions they have .80$ in loans for every dollar of deposits...down from 1:1 pre recession

 

 

He also said credit quality is the highest in his 33 years at the company...

 

Expressed differently "we've cut off credit to many people who would normally have been given credit throughout the other years that I've worked at the company.  This had led to a higher quality mix of credits".

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Kiltacular Newbie

Kiltacular

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Is it regulation or slowing demand for credit? He mentions they have .80$ in loans for every dollar of deposits...down from 1:1 pre recession

 

 

He also said credit quality is the highest in his 33 years at the company...

 

Expressed differently "we've cut off credit to many people who would normally have been given credit throughout the other years that I've worked at the company.  This had led to a higher quality mix of credits".

 

Your recent post about how low rates actually reduce the banks' appetite for credit risk was very insightful.  It's the kind of insight you get from someone with a lot of money on the line.  My portfolio would appreciate if you stay an active investor  :)

 

With respect to ROE mentioned in benchmark's post: Wells's ROE is slightly better than it appears because of the goodwill / deposit intangible write-offs that emerged from the Wachovia acquisition as compared to "pre-crisis".  But, even with the adjustment it is still not equivalent to the pre-crisis ROE.

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kevin4u2 Newbie

kevin4u2

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"In the third quarter, for every dollar in loans and deposits—our assets—we made about $1.53 or $1.55 after taxes. That’s right up there with what we did prerecession. On the other hand, our return on equity was 14.07 percent. We used to have a return on equity in the 20 percent range."

 

He seems to imply unless the regulation loosen up, ROE would not improve? I aslo wonder if this is true for jpm or bac.

 

What about the fact they are now have higher equity capital requirements?  They will earn the same amount on assets but ROE will never return to pre-recession levels.  This is the same for any company, reduce leverage and ROE's will fall. 

 

Needless to say, it was idiotic that WFC was selling for Book Value back at the end of 2011. 

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meiroy Newbie

meiroy

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Yeah, not really worth the time to watch it. The one thing interesting is that he said the reason they are not loaning out more is because they are being extra cautious due to being put back mortgages  -- done 5 or 10 years ago -- for really meaningless reasons.

 

So, looking at the glass half full, if that's the real reason and there's a number to it and a clear cause perhaps it can change for the better.  (cant blame a guy for dreaming)

 

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