WFC - Wells Fargo

[Spekulatius]

The low cost deposit base actually comes from being a heavy retail bank. And yes that business model is very profitable. If you take out Merrill Lynch B of A today would probably have similarly low costs. Same with TD in Canada.

 

TD and WFC are very comparable in being high touch retail banks. But I feel that Moynihan has done a great job at B of A turning it into one of these.

 

Yes, Moynihan does not get the credit he deserves.  He stick-handled BOA from has-been into a premier American bank just a tiny notch behind JPM.  Arguably, the most important banking CEO in the last decade, because things could have gone very wrong with BOA. 

 

Very few in the hierarchy wanted him as CEO, because he was not charismatic, but he simply put his thick, Irish, head down and worked hard.  I don't like excessive compensation for executives, but Moynihan deserved every penny!  Cheers!

 

I think it  is the a question whether BAC at a slightly higher valuation but a well run broadly diversified bank isn’t a better risk reward than WFC which probably has a bunch of issues to work through. A crisis like COVID Leads to winners like JPM and BAC pull further away from the pack.

[Ballinvarosig Investors]

Given all of the scandal they have undergone the last 2-3 years, their steady hand a share repurchase has been shrewd and IMPRESSIVE.  They were repurchasing shares at an unbelievable pace.

Doesn't seem so shrewd to me. The vast majority of shares were repurchased at about $50, the share price today is less than half that. What's worse is that the share repurchase program is actually suspended at the moment, so no shares will be repurchased at these low prices.

 

Don't get me wrong though, Wells does looks cheap, but even before covid, it looked a bit like it was on the ropes (Q3+Q4 of last year were not good quarters). Q1 of this year was bad, Q2 will also be bad. The momentum of the business here does not look good, so I've swerved it and decided to buy Bank of America. It has a similar valuation, but doesn't have the Wily E. Coyote, falling off a precipice feel that Wells does with its recent earnings and revenue. With that said, Charles Scharf could be the guy to turn this thing around. Would not bet against him, but BAC seems the slightly safer bet right now.

 

WFC looks somewhat undervalued on P/B or P/E basis compared to BAC/JPM/UBS.

But seems to me extremely undervalued if you look at Mktcap/Total Asset.

I don't think the comparison are valid. BAC and JPM both have much larger investment banks attached to them.

[Parsad]

With gold hitting new highs and banks like WFC hitting new lows, you have to wonder if the future looks a lot like the European banks. If the Fed maintains a flat yield curve and keeps on issuing trillions of debt (which has to be the baseline scenario), it will be hard for banks to make money. Banks basically move with the yield curve and we could be in for years with very little NIM for the banks. With WFC barely managing to keep it's head above the critical $24 level, WFC could sink below where it was 13 years ago. If WFC is such a great bank how come it hasn't managed to move the share price in 13 years? Yes I'm trolling but why hop on a horse running in the wrong direction?

 

Wells for a long time to me seemed like an overvalued bank, trading often in and around 1.5-1.7 times book...even in late 2019 it was trading at 1.3 times book.  It was making money year after year, and we found out eventually exactly why it was able to do that.

 

Now the pendulum has swung the other way.  No one wants to touch it.  It trades at 0.6 times book and has spent the last few years fighting the government, paying off fines and overhauling its banking culture. 

 

Is it a bargain now, or was it overvalued 13 years ago?  What would a true value investor say and do?  Cheers!

[ratiman]

Does nobody want to touch it? Ameritrade said WFC was one of the most popular stocks in June. I don't know what that means exactly, but it was one of the ten stocks mentioned by Ameritrade. Robinhood owners of WFC have risen from 20,000 to near 100,000 in the last few months. COBF board members are clearly buying it. WFC appears to be very popular! And yet the stock can't stop going down. What is going on? 

 

You make good points about historical ratios to book value but that is backward looking. Stock investors are forward looking. Right now the stock is saying that there is bad news out there that hasn't been released yet.

[Mephistopheles]

Does nobody want to touch it? Ameritrade said WFC was one of the most popular stocks in June. I don't know what that means exactly, but it was one of the ten stocks mentioned by Ameritrade. Robinhood owners of WFC have risen from 20,000 to near 100,000 in the last few months. COBF board members are clearly buying it. WFC appears to be very popular! And yet the stock can't stop going down. What is going on?

 

You make good points about historical ratios to book value but that is backward looking. Stock investors are forward looking. Right now the stock is saying that there is bad news out there that hasn't been released yet.

 

Maybe a large holder is selling off their entire position

 

:D

[rb]

Does nobody want to touch it? Ameritrade said WFC was one of the most popular stocks in June. I don't know what that means exactly, but it was one of the ten stocks mentioned by Ameritrade. Robinhood owners of WFC have risen from 20,000 to near 100,000 in the last few months. COBF board members are clearly buying it. WFC appears to be very popular! And yet the stock can't stop going down. What is going on? 

 

You make good points about historical ratios to book value but that is backward looking. Stock investors are forward looking. Right now the stock is saying that there is bad news out there that hasn't been released yet.

 

I don't think that that's a very good argument. That way you never buy anything or just become a momentum investor.

 

Every time you get a stock dropping you see these pronunciations about the all seeing eye of the market. When Apple went down to 160 or something at the end of 2018 I saw a lot of investors doing their "market knows best" routine instead of buying Apple at 7x earnings. With Apple now at 380, what exactly did the market know?

[ratiman]

It's not just that it's down, it's down relative to peers without a good explanation. WFC is a 9-1 levered black box that is mysteriously underperforming all the other black boxes.  Does it make you wonder what you don't know? 

 

[DooDiligence]

To my thinking, if enough people start wondering what they don't know, or even imagining what they do know, price gets skewed.

 

There are also varying levels of willingness to trust that management teams will fix known & unknown issues & create more clarity going forward.

 

Not saying this makes the price right or wrong (only time will tell), just saying that everyone has a different comfort level with what they don't know.

 

???Markets???

[ERICOPOLY]

It was making money year after year, and we found out eventually exactly why it was able to do that.

 

If you are talking about the fake accounts scandal, Munger/Buffett made a comment that Wells didn't profit from it, and that it was individual branch employees just trying to tick off the boxes for number of accounts opened for their individual bonuses, but without an earnings boost to the bottom line for the bank. 

 

I don't know if this was an example of bias because they owned it, or if they are correct.

 

[ERICOPOLY]

Given all of the scandal they have undergone the last 2-3 years, their steady hand a share repurchase has been shrewd and IMPRESSIVE.  They were repurchasing shares at an unbelievable pace.

Doesn't seem so shrewd to me. The vast majority of shares were repurchased at about $50, the share price today is less than half that. What's worse is that the share repurchase program is actually suspended at the moment, so no shares will be repurchased at these low prices.

 

Don't get me wrong though, Wells does looks cheap, but even before covid, it looked a bit like it was on the ropes (Q3+Q4 of last year were not good quarters). Q1 of this year was bad, Q2 will also be bad. The momentum of the business here does not look good, so I've swerved it and decided to buy Bank of America. It has a similar valuation, but doesn't have the Wily E. Coyote, falling off a precipice feel that Wells does with its recent earnings and revenue. With that said, Charles Scharf could be the guy to turn this thing around. Would not bet against him, but BAC seems the slightly safer bet right now.

 

WFC looks somewhat undervalued on P/B or P/E basis compared to BAC/JPM/UBS.

But seems to me extremely undervalued if you look at Mktcap/Total Asset.

I don't think the comparison are valid. BAC and JPM both have much larger investment banks attached to them.

 

Maybe WFC is more comparable in business model to USB, which is down more than 40% for the year.

[sundin]

Does nobody want to touch it? Ameritrade said WFC was one of the most popular stocks in June. I don't know what that means exactly, but it was one of the ten stocks mentioned by Ameritrade. Robinhood owners of WFC have risen from 20,000 to near 100,000 in the last few months. COBF board members are clearly buying it. WFC appears to be very popular! And yet the stock can't stop going down. What is going on? 

 

You make good points about historical ratios to book value but that is backward looking. Stock investors are forward looking. Right now the stock is saying that there is bad news out there that hasn't been released yet.

 

I don't think that that's a very good argument. That way you never buy anything or just become a momentum investor.

 

Every time you get a stock dropping you see these pronunciations about the all seeing eye of the market. When Apple went down to 160 or something at the end of 2018 I saw a lot of investors doing their "market knows best" routine instead of buying Apple at 7x earnings. With Apple now at 380, what exactly did the market know?

 

I agree - what exactly is priced in?

 

I do not think the div cut is priced in if it goes from $.51 to $.10. I also think the dividend cut could potentially be a positive catalyst given that the payout ratio would be significantly greater than 100% without one.

 

Post Covid, WFC likely has greater restructuring costs/severance compared to other banks, but is this a positive or negative to the price?

 

 

[sundin]

The low cost deposit base actually comes from being a heavy retail bank. And yes that business model is very profitable. If you take out Merrill Lynch B of A today would probably have similarly low costs. Same with TD in Canada.

 

TD and WFC are very comparable in being high touch retail banks. But I feel that Moynihan has done a great job at B of A turning it into one of these.

 

Interestingly TD had allegations of similar issues to WFC in 2017 where sales advisors were selling products customers didn't know they applied for and issues related to tied selling etc. Its since moved past this.

 

This year Scharf has hired two key executives from TD that were instrumental in helping the bank through those issues.

 

 

[DooDiligence]

The low cost deposit base actually comes from being a heavy retail bank. And yes that business model is very profitable. If you take out Merrill Lynch B of A today would probably have similarly low costs. Same with TD in Canada.

 

TD and WFC are very comparable in being high touch retail banks. But I feel that Moynihan has done a great job at B of A turning it into one of these.

 

Interestingly TD had allegations of similar issues to WFC in 2017 where sales advisors were selling products customers didn't know they applied for and issues related to tied selling etc. Its since moved past this.

 

This year Scharf has hired two key executives from TD that were instrumental in helping the bank through those issues.

 

www.bizjournals.com/sanfrancisco/news/2020/03/13/wells-fargo-hires-key-executive-as-new-ceo-shapes.html

 

I can't imagine Scharf screwing this up but I'm sure a lot of people can.

[villainx]

It was making money year after year, and we found out eventually exactly why it was able to do that.

 

If you are talking about the fake accounts scandal, Munger/Buffett made a comment that Wells didn't profit from it, and that it was individual branch employees just trying to tick off the boxes for number of accounts opened for their individual bonuses, but without an earnings boost to the bottom line for the bank. 

 

I don't know if this was an example of bias because they owned it, or if they are correct.

 

It could have removed a drag too.  Since bonuses (and unproductive time) was focused around the fake accounts.

[blainehodder]

It was making money year after year, and we found out eventually exactly why it was able to do that.

 

If you are talking about the fake accounts scandal, Munger/Buffett made a comment that Wells didn't profit from it, and that it was individual branch employees just trying to tick off the boxes for number of accounts opened for their individual bonuses, but without an earnings boost to the bottom line for the bank. 

 

I don't know if this was an example of bias because they owned it, or if they are correct.

 

It could have removed a drag too.  Since bonuses (and unproductive time) was focused around the fake accounts.

 

Even if they weren't making material money off the fake accounts specifically, clearly the overarching high pressure culture of cross selling to customers was a benefit. Fake accounts were a side effect of incentives and the culture.

 

https://www.citizen.org/wp-content/uploads/wells-fargo-king-of-cross-sell.pdf

 

Regardless, I don't see how Wells can't grind back to 10%+ returns on tangible equity over time. Every recession leads to an implosion, followed by naysayers speaking of crippled NIMs and low rates, only to watch all the major banks ROEs rebound materially as the economy improves. People like to use grandiose (and irrelevant demographic data) to somehow justify perpetually squashed NIMs. Naysayers said the same last time. It always comes back if the bank doesn't get wiped out on poor risk management in the interim.

 

It is highly likely to follow that same path this time.

 

Further, price matters. It seems bears in this thread come to the same conclusion regardless of capital levels. We are seeing the flip side in tech; yes the companies are great, but at some point high prices destroy forward returns.Bulls seem to think high flying tech stocks are a buy no matter the price because the companies are great and growing, with no attempt at actual valuation.

[rb]

Yeah the cheap money that grows over time even in the face of scandal, dominant distribution network (and related data), better asset/income generation business mix, superior scale (for that kind of bank) and simplicity ain't a bad combo.  It is obviously more valuable in an environment where the use of money (whatever we are using at that time) has some value.  A lot of that applies to USB too, imop.

 

Agree on TD. Pretty clear Clark and co noticed and planned to emulate Wells. Plus you will own 10% of SCHW after the deal closes (also they kind of got luck AF with timing of sale).  I wanna buy some, but am skeered of Canadian RE; they are due for a BAD beat imop (bullish on economy long term, especially if they maintain better immigration policies).  TD does seem cheaper than during GFC tho on some metrics.  Would prefer the Big Short guy Eisman was not short.

 

Memba when we were buying BAC at .60x TBV in 2011 and this was like 1.5?

 

I don't think that TD was emulating WFC. Ed Clark was doing this for a long time when he was the captain at Canada Trust then brought the model over at TD and transformed it. My guess is that they were doing it in parallel because it's such a simple model and makes so much sense. Ed Clark was probably one of the best bank CEOs in history.

 

I agree with you on the current state though. I have a big chunk of TD from back in the day but I haven't added to it due to all of the real estate risk in Canada. TD is a fantastically well run bank. But it's hard not see them take a broadside as well if something happens to Canadian real estate. The other thing is that their US business is so big now. But they have a premium multiple applied to that because it's a Canadian bank.

[rb]

It's not just that it's down, it's down relative to peers without a good explanation. WFC is a 9-1 levered black box that is mysteriously underperforming all the other black boxes.  Does it make you wonder what you don't know? 

 

Sure do your homework. Shouldn't you do that anyway?

 

But you're back to my point. Any stock that is cheap will have a chart that looks like that.

[Jurgis]

Does nobody want to touch it? Ameritrade said WFC was one of the most popular stocks in June. I don't know what that means exactly, but it was one of the ten stocks mentioned by Ameritrade. Robinhood owners of WFC have risen from 20,000 to near 100,000 in the last few months. COBF board members are clearly buying it. WFC appears to be very popular! And yet the stock can't stop going down. What is going on?

 

You make good points about historical ratios to book value but that is backward looking. Stock investors are forward looking. Right now the stock is saying that there is bad news out there that hasn't been released yet.

 

Maybe a large holder is selling off their entire position

 

:D

 

;D

 

Very underappreciated comment.  :P

[Castanza]

https://news.bloomberglaw.com/banking-law/wells-fargo-is-readying-thousands-of-job-cuts-to-start-this-year

 

 

[ratiman]

It's not just that it's down, it's down relative to peers without a good explanation. WFC is a 9-1 levered black box that is mysteriously underperforming all the other black boxes.  Does it make you wonder what you don't know? 

 

Sure do your homework. Shouldn't you do that anyway?

 

But you're back to my point. Any stock that is cheap will have a chart that looks like that.

 

 

Any stock? Value and momentum are not exclusive. I think the Hagstrom book on Buffett had charts of where Buffett bought and it was never at the bottom. Stocks go through new lows to get to new lows. Second, I don't know how you can do your homework without looking at WFC's loan book and what it owns. But I assume that bankers talk to other bankers, so somebody has that information.

[hyten1]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

[erdospi]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis. 

[rb]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis.

Well if nothing is different then why did the US consistently have higher NIMs than most other developed countries? Higher than even Canada with its vampire banks.

[erdospi]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis.

Well if nothing is different then why did the US consistently have higher NIMs than most other developed countries? Higher than even Canada with its vampire banks.

 

It has taken longer for rates to fall and good point they have less zombie loans.  Why is WFC NIM lower than the aggregate banks on FRED?

[sundin]

People always thrown around the NIM issue, make it look like we are at some crazy low NIM environment, but take a look https://fred.stlouisfed.org/series/USNIM, yes NIM is not the highest, but current NIM is not unprecedented. Sure you can argue it’ll go lower, but will it? You can argue we will following Europe or Japan, I guess that is why (Along with potential write off that is supposed coming) the banks haven’t recover much from March lows. But if banks goes so does a large part of the economy.

 

Isn’t WFC NIM already significantly lower than that?

 

Why won’t the US follow Europe and Japan. Never understand why our banking system / economy is so special relative to Europe.

 

Banks don’t have to go they just get a lower ROE in those scenarios. WFC still could be cheap with a 7% ROE and other stocks are just really expensive then in a relative basis.

Well if nothing is different then why did the US consistently have higher NIMs than most other developed countries? Higher than even Canada with its vampire banks.

 

It has taken longer for rates to fall and good point they have less zombie loans.  Why is WFC NIM lower than the aggregate banks on FRED?

 

 

May not be the reason but retail & commercial banks that have high mortgage lending books usually fund debt through shorter duration vehicles.