WFC - Wells Fargo

[rb]

A bit unrelated to what you guys are discussing above but is anyone else thinking that the regulatory environment for fintech is gonna get worse after this is all over.

 

Yes. I posted this a while back, I believe the jist of that post still holds true:

 

https://www.cornerofberkshireandfairfax.ca/forum/strategies/are-big-banks-value-traps/msg384018/#msg384018

I remember that and I pretty much agree with everything you've said. But I thought that described more of a full frontal assault on banks which is not what I've seen or have expected to happen. In no scenario do I see a bunch of techies managing capital requirements and the regulatory requirements. They probably can't even name all the regulators involved with a bank.

 

No, the scenario I had about the fintechs was them nipping at the heels of the highest margin products - like payments and such. They would do this in typical Silicon Valley fashion of running the companies at a loss while not needing capital for these services. While this would not endanger the banks it would certainly be frustrating from a profitability perspective. Banks seek to earn a return on capital. That return being composed of interest and non-interest income. With such high margin services basically subsiding things like loans.

 

However those services still interact the regulatory web. I picture a future where the regulatory response would be more along the lines of "Umm.... Computer says no."

[Guest cherzeca]

from WSJ:  " Wells Fargo & Co., for example, said in early April that it would refinance jumbo mortgages only for customers who hold at least $250,000 in liquid assets with the bank. The bank removed that requirement in early July."

 

probably stopped all new apps

[LounginMKL]

From WSJ this morning

 

"Wells has less capacity to handle default as well as less flexibility to extend credit because of a cap on its asset growth set by the Federal Reserve in 2018."

 

How does the asset cap affect Wells capacity to handle default?

[LC]

Ultimately it leads to less reserves.

[CorpRaider]

From WSJ this morning

 

"Wells has less capacity to handle default as well as less flexibility to extend credit because of a cap on its asset growth set by the Federal Reserve in 2018."

 

How does the asset cap affect Wells capacity to handle default?

 

According to Shrewsberry asset cap is costing them maybe $2 bill per year run rate income (b/c the additional revenue would be on existing expense/liability base), that could offset addt'l provisions.

[Spekulatius]

Republican financial service report on WFC

https://republicans-financialservices.house.gov/uploadedfiles/republican_staff_report_on_wells_fargo.pdf

 

If you ignore the blatant political advertisement in the beginning, this is pretty good report detailing exactly the many things where WFC went wrong.

[LC]

Great resource, thanks for posting.

 

 

Unlike the rest of the industry, Wells Fargo maintained its

fragmented model, which relied on “strong deference” to the leaders of the company’s siloed

business lines, who were told to “run it like you own it.”

52

Under Wells Fargo’s fragmented

structure, risk officers reported to individual business line leaders, which positioned managers to

choose between risk management and their bottom lines.

Documents show Tim Sloan and his management team were unable to transform the

company. A deficit of in-house risk management expertise stalled the company’s efforts to

remediate customers and develop a risk management plan. The evidence also shows the Board

of Directors was slow to recognize the scope of the firm’s problems and management’s inability

to solve them.

 

No firmwide independent risk functions? Full stop

 

Peetz stated that the Board had expanded beyond its traditional oversight function while

the firm built out its management team.

475 In the absence of a Chief Risk Officer, Peetz took on

responsibility for communicating information to the Board related to risk until Amanda Norton

was hired.476

Peetz resigned from the board due to the immense workload, much of which would

ordinarily have been handled by management.

477

 

Board members functioning as CRO? What the...

 

Some other points:

 

-Consultants LEADING (not implementing) regulatory remediations is a big ole red flag.

-Scharf is still depending too much on internal management. They need fresh blood and actual bankers, not banksters. They should be poaching from citi and bofa - the two peers who went through the most difficult transformations.

[lnofeisone]

Republican financial service report on WFC

https://republicans-financialservices.house.gov/uploadedfiles/republican_staff_report_on_wells_fargo.pdf

 

If you ignore the blatant political advertisement in the beginning, this is pretty good report detailing exactly the many things where WFC went wrong.

 

Spek - thanks for sharing. This is an amazing and definitely a must-read for anyone holding WFC. Definitely changed my opinion that this is a 1-3 year turnaround to probably 3-5 year with a lot of work.

 

To LC's point below, I think they are starting to hire though it would be good to see a well thought out strategy. My very loose data point is that someone in my professional network reached out to talk WFC. This individual's career covers OCC and CFPB.

[Spekulatius]

Republican financial service report on WFC

https://republicans-financialservices.house.gov/uploadedfiles/republican_staff_report_on_wells_fargo.pdf

 

If you ignore the blatant political advertisement in the beginning, this is pretty good report detailing exactly the many things where WFC went wrong.

 

Spek - thanks for sharing. This is an amazing and definitely a must-read for anyone holding WFC. Definitely changed my opinion that this is a 1-3 year turnaround to probably 3-5 year with a lot of work.

 

To LC's point below, I think they are starting to hire though it would be good to see a well thought out strategy. My very loose data point is that someone in my professional network reached out to talk WFC. This individual's career covers OCC and CFPB.

 

Yes, a very good read indeed. Bill Brewster posted this link in twitter and deserves the credit for digging this out. He is also long WFC.

[changegonnacome]

Agree this is longer turnaround than some have expected.

 

Waiting for 2023 Leaps as a result - should be here in September i think

[DooDiligence]

www.bloomberg.com/news/articles/2020-07-27/wells-fargo-files-with-sec-to-provide-exchange-traded-funds

[Munger_Disciple]

Great! I guess now Wells Fargo will be able to add an ETF scandal to its growing list of scandals  :-\

[DooDiligence]

Great! I guess now Wells Fargo will be able to add an ETF scandal to its growing list of scandals  :-\

 

Can they even do this with the asset cap in place?

 

But yeah, maybe another potential pain point too.

[Spekulatius]

Great! I guess now Wells Fargo will be able to add an ETF scandal to its growing list of scandals  :-\

The financial community has been yearning for Wells Fargo ETF’s for a long time. Soon, we won’t know how to do without them any more.

[peluche]

I signed up for a WF checking account a few months ago to get a bonus and I just received this in the mail..

 

To help our customers during these challenging times, we are extending your qualification period for your checking account bonus offer to give you more time to meet the bonus requirements.

 

What you need to know

Since you opened your account between December 27, 2019 and July 31, 2020, you will now have until December 31, 2020 to complete the qualifying activities required to earn the new account bonus. Please refer back to your bonus disclosure for details on the qualifying activities. While the qualification period has been extended, we will continue to track and pay bonuses based on the terms specified in the account opening bonus disclosure.

 

As a reminder, the new personal checking account must still be open at the time we attempt to deposit your bonus payment. Accounts with a zero balance may be subject to automatic closure pursuant to the terms of the Deposit Account Agreement.

 

If you have questions Please call us at 1-800-869-3557 to speak with a banker.

 

Thank you. We appreciate your business.

 

Previously, it was only 90 days to complete all the requirements. It's a small gesture, but I'm kinda surprised to see something like this coming from Wells Fargo. Hopefully they keep taking steps to put the customer first instead of figuring out ways to rip them off

[Omm]

What does everyone think of the report that buffett has sold out of the stock? Is it unexpected, and should it make us rethink our views on the investment?

[LC]

It is on my mind as well, Omm

 

I think he sold out. As to the reasons why, I have no answers.

 

For clarity, WFC is a 3-4% position for me, BRK is a 10% position.

[Junto]

Doesn't change my position on the stock at these levels. Not sure he would liquidate a position of that size at this point in time (less than tangible book and still paying some level of dividend).  I only added recently at just above $24.  Feel with new management focused on efficiency gains and regulatory improvements, we could get back to tangible book of ~$30 in coming months.

[marazul]

It is highly likely Buffett sold. A few months ago he said he doesn´t like to trim positions, once he sells he likes to sell everything. In late 2019 he actually trimmed WFC, so expected he wanted to get completely out of it. And it was not jsut to stay below 10% ownership, he sold more than that.

 

I find it odd that he sold at 2x current prices, and stopped selling for a while. Then unloaded the shares at 0.5x the price he sold a few months ago. He didn´t keep selling at higher prices and once it fell didn´t wait for slighly higher prices.

 

Some possible explanations:

-He didn´t like the approach taken by new management.

-Dind´t want to be the largest shareholder of a troubled bank given reputation and regulatory risk

-He wants to focus his banking investment in Bank of America

-Problems are bigger than initially expected and the future is grim for the bank.

-His assumption that it was the best franchise in banking was misplaced.

-Franchise has been impaired due to all the problems in the last few years

 

It is not a good sign given how close Buffett has been to the bank. He has been invested for decades. Once mentioned during the worst days of the crisis, that he would put 100% of his NW in Wells. We will soon know more but if he sold, we should probably pay attention.

[LC]

The big difference is selling for competitive reasons (his BOA stake) vs selling for impairment reasons.

 

We will likely never know the answer. Everything else is conjecture.

 

The best we can do (IMO) is judge the bank on its merits and ignore WB's activity.

[vinod1]

Buffett is ultra-focused on risk. Here is what he has to say.

 

CHARLIE MUNGER: Yeah, but that may be a peculiarity of ours. We are especially prone to get uncomfortable around financial institutions.

 

WARREN BUFFETT: We’re quite sensitive to — risk in — whether it’s in banks, insurance companies or in what they call GSEs here, in the case of Freddie and Fannie. We feel there’s so much about a financial institution that you don’t know by looking at just figures, that if anything bothers us a little bit, we’re never sure whether it’s an iceberg situation or not.

 

And that doesn’t mean it is an iceberg situation, in the least, at banks or insurance companies that we pass. But we have seen enough of what happens with financial institutions that push one way or another, that if we get some feeling that that’s going on, we just figure we’ll never see it until it’s too late anyway.

 

And when we get to that situation, it’s different than buying into a company with a product or something, or a retail operation. You could spot troubles usually fairly early in those businesses. You spot troubles in financial institutions late. It’s just the nature of the beast.

 

WARREN BUFFETT: Financial institutions don’t get in trouble by running out of cash in most cases. Other businesses, you can spot that way. But a financial institution can go beyond the point — and we had banks 10 years ago that did that, en masse — but they can go beyond the point of solvency even while they still have plenty of money around.

 

Vinod

 

[sleepydragon]

I got chickened out and sold almost all of my WFC yesterday. I had sold half previously at around 50ish.

To harvest the tax loss (for the future) and keep my exposure to banks the same, I used the proceeds to equally weighted BAC, JPM, MTB, and BOH.

I will wait till 13F comes out and/plus 30 days, to see if I want to buy back a small amount of WFC.

 

[dbuch]

My understanding was WEB can't go above 10% on WFC per regulators (Without becoming a bank holding company). Some of BRK businesses have had relationships with WFC so that is unlikely to change. Regulators gave WEB their blessing to go above 10% on BAC so that is what he's doing.

 

WFC was spending $20Bish per year buying back stock and at $50 that was shrinking the share count fast so he may have sold a decent chunk to stay under that 10% limit.

[Omm]

It is a large position for me and does make me nervous as I have a lot of respect for warren as an investor. My cost basis is over 50 as well from a couple of years back, which is also not a geat position to be in.

 

I always liked Wells Fargo in the past but am completely stumped as to what to think of the bank now after the scandal it got itself into. I’m taking this an opportunity to really consider whether I should be invested. Is there anyone here with any insight into what the current situation is?

[Omm]

We know that Charlie hasn’t sold up to last quarter in the daily journal. I’m not sure how active and/or concerned he his with that portfolio. It is after all a very small part of his net worth.