WFC - Wells Fargo

[valueinvesting101]

WFC market cap is hovering around $185 billion. Last time it was around this market cap in 28 Feb, 2013.

[koshigoe]

WFC market cap is hovering around $185 billion. Last time it was around this market in 28 Feb, 2013.

 

with even modest 10% div raise in July, yield will be north of 5% at present prices, and that at a sustainable payout ratio of 40-something %

 

plus another 8-10% repurchase over next CCAR period

 

sure it can go lower, but geez that sure seems mispriced, and deposits continue to grow

 

 

 

 

[Guest Schwab711]

There were 3 rate cuts in 2019 and WFC's cost of deposits went up 7bps Y/Y. WFC had to advertise to get those deposits. Non-interest bearing deposits were down Y/Y, despite 3 rate cuts. Deposits were used to to fund the bank's increased leverage. I don't think total deposit growth is a meaningful statistic here.

[Mephistopheles]

There were 3 rate cuts in 2019 and WFC's cost of deposits went up 7bps Y/Y. WFC had to advertise to get those deposits. Non-interest bearing deposits were down Y/Y, despite 3 rate cuts. Deposits were used to to fund the bank's increased leverage. I don't think total deposit growth is a meaningful statistic here.

 

Still, WFC's total cost of deposit is lower than BAC's.

[Guest Schwab711]

I still think WFC is a good franchise. They have a higher % of non-interesting bearing deposits as a % of total deposits as compared to BAC, so their funding could dip below BAC again in the future. I don't think WFC has a relative funding advantage anymore. In general, I don't think the reputation of WFC as an investment matches WFC on paper.

 

In 4Q19:

WFC: 62bps (from 4Q19 investor presentation https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/earnings/fourth-quarter-2019-earnings-supplement.pdf p.12/38)

BAC: 44bps = ($1.548b IE on Deposits * 4)/[($1,434.8b + $1,392.8b)/2]

 

* I get 63bps on deposits for WFC ($2.072b IE on deposits * 4)/[($1,308.5b + $1,322.6b)/2]. Close is good though.

 

**BAC reports cost of interest-bearing deposits (61bps), so not apples-to-apples with WFC.

http://investor.bankofamerica.com/static-files/e9089da5-232d-4364-b456-71d7c4a5e13f (p.11/31)

[CorpRaider]

Yeah BAC does some stuff to back out the crappier businesses if memory serves.  WFC just whips theirs out on the table.

[Cardboard]

This is getting interesting. There is a pretty good chance that this breaks its 52 week low with this panic and heads into the $30's. Then you get a 7-8 P/E with a great franchise.

 

One poster is correct to state that BAC looked terrible and nobody wanted to touch it. Way worst financial shape than WFC. I really wondered for a long time how they would ever make $2 EPS and earn a decent return on TBV?

 

Then you had the very weak CEO handing out a Christmas gift to Buffett. You think is a hero now because a money making machine finally got rid of its troubles after over a decade and now trading in the low $30's?

 

And what about size of liability? BAC was just horrible and it took forever to get rid of bad loans. You have none of that at WFC other than a few slap on the wrist fines from wannabe president such as Pocahontas.

[undervalued]

I still think WFC is a good franchise. They have a higher % of non-interesting bearing deposits as a % of total deposits as compared to BAC, so their funding could dip below BAC again in the future. I don't think WFC has a relative funding advantage anymore. In general, I don't think the reputation of WFC as an investment matches WFC on paper.

 

In 4Q19:

WFC: 62bps (from 4Q19 investor presentation https://www08.wellsfargomedia.com/assets/pdf/about/investor-relations/earnings/fourth-quarter-2019-earnings-supplement.pdf p.12/38)

BAC: 44bps = ($1.548b IE on Deposits * 4)/[($1,434.8b + $1,392.8b)/2]

 

* I get 63bps on deposits for WFC ($2.072b IE on deposits * 4)/[($1,308.5b + $1,322.6b)/2]. Close is good though.

 

**BAC reports cost of interest-bearing deposits (61bps), so not apples-to-apples with WFC.

http://investor.bankofamerica.com/static-files/e9089da5-232d-4364-b456-71d7c4a5e13f (p.11/31)

 

Based on that BAC presentation, they are buying a boat load of stock almost 3 times more than WFC including dividends.

[koshigoe]

Based on that BAC presentation, they are buying a boat load of stock almost 3 times more than WFC including dividends.

 

not sure how one comes up with such difference, WFC returned 9B net repurchase and div in Q4, compared to BAC repurchasing $7.7B of common shares and paid $1.6B in common dividends in 4Q19.

 

 

[elliott]

I wonder if there’s way to tell if WEB had sold more WFC since 12/31 (13f holding date)? Maybe from the info in the 10k/annual letter?

Seems he sold wfc and bought bac, keeping his bank exposure the same. Almost like a tax loss harvest sales although he doesn’t have any tax loss on wfc.

 

I dont know about that, but looking at WFC in Buffetts portfolio is very revealing. In 2015Q2, WFC share of Buffetts portfolio peaked at 24%, since then that share has been dropping in almost all quarters. More specifically, Buffett has unloaded WFC shares in 10 out of the last 11 quarters (ending in 2019Q4).

 

I think it was in this thread that someone said: dont look at what Buffett says, look at what he does. Well, what he is doing is pretty clear to me.

[Spekulatius]

USB seems like a better deal currently - the stock is currently dropping like a rock. The PE premium seems like one turn? This is a clean bank without baggage,  compared to WFC which is likely stuck in the muck for a couple more years and can’t grow.

 

I also think USB is less affected by lower interest rates, due to a high proportion of fee income (haven’t  checked this recently though).

[undervalued]

Based on that BAC presentation, they are buying a boat load of stock almost 3 times more than WFC including dividends.

 

not sure how one comes up with such difference, WFC returned 9B net repurchase and div in Q4, compared to BAC repurchasing $7.7B of common shares and paid $1.6B in common dividends in 4Q19.

You’re right. I was looking at BAC for whole 2019 vs WFC 2019Q4 numbers

[ERICOPOLY]

5% dividend yield now.

 

This week, WFC is outperforming USB, JPM, BAC, C.  But not SPY.

[griezeman23]

For context, WFC traded at a low ~1.01x TBV during the crisis, at roughly 1.2x today....

[kab60]

Europe is littered with banks trading at 0,5 TBV... Half decent banks even... Seems like negative rates might come to the US, so I'd venture things are different this time

[griezeman23]

Europe is littered with banks trading at 0,5 TBV... Half decent banks even... Seems like negative rates might come to the US, so I'd venture things are different this time

 

Things are always different... Clearly, if you think negative rates are likely, then you aren't buying banks whatsoever. Coronavirus is a textbook supply shock, straight out of econ 101.

[Guest cherzeca]

Europe is littered with banks trading at 0,5 TBV... Half decent banks even... Seems like negative rates might come to the US, so I'd venture things are different this time

 

so you ar saying I should taking the springs out of my mattress?

[ERICOPOLY]

The volatility premium in the 2022 LEAPS really isn't all that high.  You can leverage a common stock WFC position by anywhere up to 2x using at-the-money LEAPS and then reasonably anticipate the dividend from the common stock to pay off the margin used to buy the LEAPS by the time they expire.

 

Then once expiry hits, two years have passed and the stock is quite likely considerably higher and you can most likely replace the $40 put super-cheap, due to skewness, when the shares are significantly higher than today (relative to today's cost) if you wished to continue the leverage.

 

And no, I'm not a professional, this is not financial advice, and I consider it to be speculative and you can lose 100% of your investment.

 

[kab60]

Europe is littered with banks trading at 0,5 TBV... Half decent banks even... Seems like negative rates might come to the US, so I'd venture things are different this time

 

so you ar saying I should taking the springs out of my mattress?

Probably in not too long. Deposits above 40.000 USD in one Danish bank now costs money. Most places it actually costs money now above a certain threshold, typically 100k.

[Sullivcd]

The volatility premium in the 2022 LEAPS really isn't all that high.  You can leverage a common stock WFC position by anywhere up to 2x using at-the-money LEAPS and then reasonably anticipate the dividend from the common stock to pay off the margin used to buy the LEAPS by the time they expire.

 

Then once expiry hits, two years have passed and the stock is quite likely considerably higher and you can most likely replace the $40 put super-cheap, due to skewness, when the shares are significantly higher than today (relative to today's cost) if you wished to continue the leverage.

 

And no, I'm not a professional, this is not financial advice, and I consider it to be speculative and you can lose 100% of your investment.

 

Is he back???

[LC]

[Sullivcd]

https://www.nba.com/pacers/sites/pacers/files/mj-comeback-si-cover.jpg

[plato1976]

I really don't think the biggest issue here is whether its franchise is permanently damaged;

the biggest issue is whether we will go into a permanent low interest environment (in the extreme case - 0 or negative interest like in Europe)

, and I am not sure what kind of valuation we should give to BAC, WFC in such an environment

Are they still worth today's price?

 

[John Hjorth]

I really don't think the biggest issue here is whether its franchise is permanently damaged;

the biggest issue is whether we will go into a permanent low interest environment (in the extreme case - 0 or negative interest like in Europe)

, and I am not sure what kind of valuation we should give to BAC, WFC in such an environment

Are they still worth today's price?

 

Plato,

 

I [, me, personally, now living in a Northern European state for several years, with negative interest rates] think this line of thinking is somewhat flawed. Negative interest rates on deposits are only a part of the whole equation. In short, it about Net Interest Margin, not the interest level.

[Spekulatius]

I really don't think the biggest issue here is whether its franchise is permanently damaged;

the biggest issue is whether we will go into a permanent low interest environment (in the extreme case - 0 or negative interest like in Europe)

, and I am not sure what kind of valuation we should give to BAC, WFC in such an environment

Are they still worth today's price?

 

Plato,

 

I [, me, personally, now living in a Northern European state for several years, with negative interest rates] think this line of thinking is somewhat flawed. Negative interest rates on deposits are only a part of the whole equation. In short, it about Net Interest Margin, not the interest level.

 

NIM is correlated with absolute risk free interest rates. I don’t know any country they had high NIM and low or zero risk free rates. Even right now, when you look at the NIM trends of all major US banks, you can see that they have been trending down since the rate cut. The current interest rate trends in the US clearly forebodes lower profitability going forward for quite some time for banks.