WFC - Wells Fargo

[Junto]

real estate collections and real estate value concerns. Good to do a data check vs jump to conclusions.

 

https://www.reit.com/data-research/research/nareit-research/reit-industry-august-2020-rent-collections

[LearningMachine]

I am more worried about what they have no control over - interest rates.

 

I am not worried about this because I think Fed and the politicians of both parties will eventually be successful in creating inflation, and long-term market interest rates will follow inflation.

 

LearningMachine, what gives you confidence that the Fed will be able to create inflation?

 

Has Japan not been failing miserably at this exact same thing for 20 years? Has Europe not failed for the past 6 years? It seems to me fairly clear that developed economies for the past 30 years have been in a slow decent to zero interest rates. And all now look firmly on a glide path to negative rates. We are in the worst recession since the Great Depression. Do people honestly think in this environment the Fed will be able to reverse the current trend?

 

Mild deflation is the most likely outcome in the coming years. Covid will likely be with us for years; if so, economic output will continue to lag and unemployment will remain elevated. This sounds to me like deflation is much more likely than inflation. The Fed can do all that it wants to prop up asset prices. Perhaps this slows the current trend; but inflation followed by higher interest rates? No way... way too much debt for rates to move higher. And the economy will be too weak to support higher rates.

 

Yes, there is a chance the Fed will be successful with their current experiment. But the odds for this happening are low.

 

It is not just the Fed, but the politicians too.  Both parties have already crossed the line into sending direct payments to Americans.  Beneficiaries won't let it be stopped, and politicians would continue to abide to win elections.  It is not the politicians' own money after all.  Imagine the extreme scenario where we start sending every American $100,000 per month for next 10 years, folks will be competing with each other to spend on the same limited goods and services available today, creating hyperinflation.  We are just creating a milder version of that.

 

Most importantly, we have created precedence to do it again and again if there is trouble, now due to Covid, and in the future, due to something else.

 

With Japan, you have to remember, it has also been running big trade surpluses, and so Japanese yen has been about the same level with respect to USD since 1994.

[DooDiligence]

In the bleakest of scenarios Wells still holds up nearly as good as BOA, and JPM doesn't look so good. Of course, this is assuming that the worst isn't optimistic. In my weak assed opinion, there are too many potential catalysts that could lead to an upward rerating of Wells & banking in general. Granted, unforeseen & extended existing negative macro events can cut deeper to the downside. Put on your big boy pants or go home  ???

www.federalreserve.gov/publications/files/2020-dfast-results-20200625.pdf

www.federalreserve.gov/supervisionreg/dfa-stress-tests.htm

This is a line of reasoning that makes sense but, even if the long-term risk-reward profile has improved with present market valuation, i've decided, for now, to wait (not hope, just be ready, just in case) for more absurd prices. i'll be ready to switch this idea from the unrealized errors of omission pile to the realized one, if applicable.

WFC and other large banks are much better capitalized and show a better liquidity profile. So i've been looking at various stress tests. The problem with these regulatory tools, to a more or less significant degree, is that they are always 'improved' in order to fight the last war.

WFC has several strong attributes and the present management travails offers a potential entry point. But there's the possibility (not unlike Geico in the mid 70s) that inadequate credit pricing risk plays out in an environment where the ultimate liquidity provider may not be able to restore confidence, at least for a while, and even if considered too large to fail.

The banks may be able to muddle through somehow (as in the case almost always) but there are deflationary risks to the widespread debt overhang. The liquidity providers have not crossed the Rubicon for the inflation risk but they are knee-deep. The fact that Japan has reached waist level is not reassuring. It may come to be a Faustian bargain.

Banks are in the business of money and looking at money fundamentals is fair game. Recently, i came across the following which were helpful to think about some issues discussed in various preceding posts.

https://www.bankofengland.co.uk/-/media/boe/files/ccbs/resources/understanding-the-central-bank-balance-sheet.pdf

https://image.mail1.wf.com/lib/fe8d13727664027a7c/m/4/43376de0-7960-4db7-8a90-25013d288732.pdf?utm_source=SFMC&utm_medium=email&utm_campaign=&utm_content=&utm_term=7230679&sid=1954577

https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economics/special-reports/implications-20200803.pdf

This topic and this investment are bound to remain interesting, at least intermittently.

 

The BOE paper is illuminating & expands on what Wabuffo has been writing.

(  I have a sneaking suspicion that he talks to the authors :D  )

 

---

 

It's relatively easy to helicopter money in & keep rates low, but how do you get inflation & will you be ready for it when it comes?

 

The Doctor dreams of creating a Frankenstein while merrily sawing off the best body parts and sewing them back together. The creature may never come to life, but if it does, it could eat your whole village & then watch out for the pitchforks & torches.

 

I guess the Frankenstein could also be deflation + high unemployment? Stag-deflation?

 

---

 

This reminds me of another story, which relates to the Fed chair & is easily transferable to investors:

 

A warship was sailing along when the mast lookout called to the deck "enemy ship closing fast on the larboard bow".

 

The Captain issued orders to clear for battle & told the cabin boy "bring me my red shirt".

 

After the enemy was defeated one of the officers asked the Captain why he always wore a red shirt into battle & was told "if I am wounded I don't want the men to notice & lose heart".

 

Weeks later the mast lookout shouted down "three enemy ships closing fast on the larboard & starboard bows".

 

The Captain bravely ordered the decks cleared for battle & told the cabin boy "bring me my brown pants".

 

---

 

I'm wearing my brown pants & fully expect to have to change them before WFC rises up again, if ever.

[valueseek]

Hi

 

I had a quick question. With a lot of the places in the world at negative nominal short term interest rates right now, can anyone shed some color or point me to some commentary to what happens to WFC's profitability ROE/NIM if US goes to say -1% or -2% negative short term rates. And should in that scenario bank valuation come to at or below tangible book like it exists in parts of Europe. I understand regulation, cost structures, growth profile is different there vs. US. One thing is that similar to debt service improves with lower rates, the credit losses for banks probably improve relative to previous historical instances. But just trying to get a better understanding as to what happens to profitability/ROE in a negative 1-2% short term rate environment and an environment where long end of yield curve that is generally not in control of central bankers and may be reflective of interest rates does not steepen much.

 

Thanks.

 

[mjm]

https://www.wsj.com/articles/fed-to-propose-overhaul-of-lending-rules-for-poorer-communities-11600695600?mod=hp_lead_pos5

 

pause for thought

[rb]

Hi

 

I had a quick question. With a lot of the places in the world at negative nominal short term interest rates right now, can anyone shed some color or point me to some commentary to what happens to WFC's profitability ROE/NIM if US goes to say -1% or -2% negative short term rates. And should in that scenario bank valuation come to at or below tangible book like it exists in parts of Europe. I understand regulation, cost structures, growth profile is different there vs. US. One thing is that similar to debt service improves with lower rates, the credit losses for banks probably improve relative to previous historical instances. But just trying to get a better understanding as to what happens to profitability/ROE in a negative 1-2% short term rate environment and an environment where long end of yield curve that is generally not in control of central bankers and may be reflective of interest rates does not steepen much.

 

Thanks.

I would suggest you check out the annual reports for SHB.

[coc]

Hi

 

I had a quick question. With a lot of the places in the world at negative nominal short term interest rates right now, can anyone shed some color or point me to some commentary to what happens to WFC's profitability ROE/NIM if US goes to say -1% or -2% negative short term rates. And should in that scenario bank valuation come to at or below tangible book like it exists in parts of Europe. I understand regulation, cost structures, growth profile is different there vs. US. One thing is that similar to debt service improves with lower rates, the credit losses for banks probably improve relative to previous historical instances. But just trying to get a better understanding as to what happens to profitability/ROE in a negative 1-2% short term rate environment and an environment where long end of yield curve that is generally not in control of central bankers and may be reflective of interest rates does not steepen much.

 

Thanks.

I would suggest you check out the annual reports for SHB.

 

I calculate a NIM in the range of 115bps is that about what you're seeing?

 

Interesting how levered they are forced to be to generate a 10%+ ROE. Also interesting how little fee income they derive compared to our banks.

 

Good suggestion thanks.

[oldye]

How much do you think it will cost to layoff 25%+ of the workforce, close 1000+ branches, modernize the technology and fix the culture at Wells Fargo?

 

Just playing devils advocate, because on paper it looks like a no brainer. If they can cut 10 billion in costs, and keep most of their current business, its selling at about 5x earnings.

 

I have talked to a former employee at Wells Fargo and the problems at the bank are in their dna.

It definitely was much more than just poor incentives, the culture at the bank is truly awful. They punish whistle blowers, and promote yes men. Former Wachovia employees are still at Wells Fargo. The new ceo hasn't done anything to improve the culture so far.

 

The recent comments by the ceo about not being able to find enough black talent is also concerning and extremely tone deaf. Can't imagine how low morale is right now at the company. Reading employee boards doesn't help dissuade my concerns..

 

I never understood why anybody paid to be a Wells Fargo customer, location? Inertia?

 

If you close 25% of the branches, you make it far less convenient for people who are used to paying fees to continue to bank with you.

 

I don't know anyone in my current circle that would be willing to pay a monthly fee to write checks..I think the 5 billion per year they collect from fees will disappear over time.  Consumers, who can are obviously deleaveraging and paying off high interest credit cards as quickly as they can.

 

Now you have all these issues to clean up while dealing with shrinking net interest margins and more nimble competition just waiting to eat your lunch.  Wfc reminds me of Sears.

[Broeb22]

Sears? So you think Wells is headed for bankruptcy?

 

I personally think that’s nuts...

[oldye]

Not necessarily bankruptcy, just a slow painful fall from grace. Prior to 2008, a huge % of Americans purchased their Appliances at Sears. I think they had like 40%+ of the market. Wells used to be responsible for more than 20%+ of all US Mortgages, now it's down to less than 10%. Rocket Mortgage is growing at 19% per year..

 

I think Pobrai summarized it best, sure there are assets at Sears, but there are hundreds of thousands employees between you and those assets. It costs a lot of money to fire bankers and terminate leases. It also costs a lot of money catch up with your competitors technology.

 

Why do you bank with Wells Fargo?

 

 

Friendly, fast and helpful service? Nope

 

Lots of Atms? You can use any Atm for free with a Schwab account.

 

Lower rate loans? You can find much better rates at credit unions and they don't ask you to keep 250k in liquid accounts if you need a jumbo loan.

 

On top of all that you have to deal with an asset cap.

 

Why won't Chase or Bofa, Rocket Mortgage Lending Tree etc continue to eat their lunch?

 

 

 

 

 

[CorpRaider]

How much did it cost BAC?  It was just like three years ago. 

 

If the deposits started showing signs, like any signs....at all...I would start to get worried. 

 

It would be good for them if the Fed let a bunch of their non-bank competitors get destroyed/distressed like they were heading in March.  None of those guys, to my knowledge, get cash pouring in over the transom in times of flight to safety.  Maybe after going through that recently the Quicken founder decided he wants to sell us his business? 

 

Seems like you also get free option on upside changes due to technology, like what if Zelle which already has more volume than Venmo, is the next MA or V or something like that?

 

 

 

 

[Viking]

When i look at political risk in the US the big US banks are at the top of my list, especially if the Democrats win Presidency and both houses.

 

1.) Higher tax rates - direct hit to earnings (just like it was the opposite with the cut).

2.) Elizabeth Warren (or clone) put in oversight role

 

It will be especially hard for Wells Fargo to restructure. They will be cutting many more employees than the other big banks (who are much further along in their transformation). The optics will be terrible. And the pandemic will be with us for the next year. This could slow WFC.

 

I think i am better understanding Buffet’s decision to exit. He is as close to an insider as it gets.

[Junto]

When i look at political risk in the US the big US banks are at the top of my list, especially if the Democrats win Presidency and both houses.

 

1.) Higher tax rates - direct hit to earnings (just like it was the opposite with the cut).

2.) Elizabeth Warren (or clone) put in oversight role

 

It will be especially hard for Wells Fargo to restructure. They will be cutting many more employees than the other big banks (who are much further along in their transformation). The optics will be terrible. And the pandemic will be with us for the next year. This could slow WFC.

 

I think i am better understanding Buffet’s decision to exit. He is as close to an insider as it gets.

 

Understandable position. I would indicate that the banks although maybe under closer insight during the Obama years, still were able to successfully move forward. The tax issue I think is a broader impact but does require a clean sweep of the congress and presidency. I am not sure that will occur.

 

In the end, banks live within a regulatory construct. I am not sure it materially changes under a new president. Just more of the same and perhaps focus moves from one area to another. 

[A_Hamilton]

When i look at political risk in the US the big US banks are at the top of my list, especially if the Democrats win Presidency and both houses.

 

1.) Higher tax rates - direct hit to earnings (just like it was the opposite with the cut).

2.) Elizabeth Warren (or clone) put in oversight role

 

It will be especially hard for Wells Fargo to restructure. They will be cutting many more employees than the other big banks (who are much further along in their transformation). The optics will be terrible. And the pandemic will be with us for the next year. This could slow WFC.

 

I think i am better understanding Buffet’s decision to exit. He is as close to an insider as it gets.

 

Understandable position. I would indicate that the banks although maybe under closer insight during the Obama years, still were able to successfully move forward. The tax issue I think is a broader impact but does require a clean sweep of the congress and presidency. I am not sure that will occur.

 

In the end, banks live within a regulatory construct. I am not sure it materially changes under a new president. Just more of the same and perhaps focus moves from one area to another.

 

What if Biden wins and Jamie Dimon becomes treasury secretary, surprising everyone?

[Parsad]

There was a time when almost every numbnuts on here would have paid book value as a hugely, cheap discount price for Wells Fargo.  I never owned it then.  The only big bank I've owned over the last 12 years has been all of the BAC I bought at $5 back in 2008, some more at $13 and finally we bought quite a bit this year at $19.  I owned some Wells Fargo in 2008 when I bought it at $13 and sold a couple of years later at $27.  I have not bought Wells till this March.

 

Buffett says that the markets are a voting machine in the short-term and a weighing machine in the long-term.  In the short-term, Wells has been hammered with one scandal after another, one fine after another.  Yet, here we are and they are still the 3rd most dominant U.S. bank after JPM and BAC, and globally less than 15 banks are anywhere near its size.  They are still making money hand over fist with all of these fines and regulatory constraints.  They are still one of the best capitalized in the current scenario and under the most stressful scenarios that the FED can think of.  We are at zero short-term interest rates and they are still making money.  It is trading at 0.6 of book, a price most would say was "outrageous, stupid, plain dirt cheap" if Buffett still held it and there was no scandal around it.  Instead, the Buffett acolytes pour into JPM when Buffett says read Dimon's reports, and when Buffett bails on WFC and buys BAC, the acolytes load up on BAC.

 

Voting machine now.  Don't forget the weighing machine later!  Cheers! 

 

[ValueMaven]

There was a time when almost every numbnuts on here would have paid book value as a hugely, cheap discount price for Wells Fargo.  I never owned it then.  The only big bank I've owned over the last 12 years has been all of the BAC I bought at $5 back in 2008, some more at $13 and finally we bought quite a bit this year at $19.  I owned some Wells Fargo in 2008 when I bought it at $13 and sold a couple of years later at $27.  I have not bought Wells till this March.

 

Buffett says that the markets are a voting machine in the short-term and a weighing machine in the long-term.  In the short-term, Wells has been hammered with one scandal after another, one fine after another.  Yet, here we are and they are still the 3rd most dominant U.S. bank after JPM and BAC, and globally less than 15 banks are anywhere near its size.  They are still making money hand over fist with all of these fines and regulatory constraints.  They are still one of the best capitalized in the current scenario and under the most stressful scenarios that the FED can think of.  We are at zero short-term interest rates and they are still making money.  It is trading at 0.6 of book, a price most would say was "outrageous, stupid, plain dirt cheap" if Buffett still held it and there was no scandal around it.  Instead, the Buffett acolytes poor into JPM when Buffett says read Dimon's reports, and when Buffett bails on WFC and buys BAC, the acolytes load up on BAC.

 

Voting machine now.  Don't forget the weighing machine later!  Cheers!

 

Very well said Parsad!!!!

[Ballinvarosig Investors]

There was a time when almost every numbnuts on here would have paid book value as a hugely, cheap discount price for Wells Fargo.  I never owned it then.  The only big bank I've owned over the last 12 years has been all of the BAC I bought at $5 back in 2008, some more at $13 and finally we bought quite a bit this year at $19.  I owned some Wells Fargo in 2008 when I bought it at $13 and sold a couple of years later at $27.  I have not bought Wells till this March.

 

Buffett says that the markets are a voting machine in the short-term and a weighing machine in the long-term.  In the short-term, Wells has been hammered with one scandal after another, one fine after another.  Yet, here we are and they are still the 3rd most dominant U.S. bank after JPM and BAC, and globally less than 15 banks are anywhere near its size.  They are still making money hand over fist with all of these fines and regulatory constraints.  They are still one of the best capitalized in the current scenario and under the most stressful scenarios that the FED can think of.  We are at zero short-term interest rates and they are still making money.  It is trading at 0.6 of book, a price most would say was "outrageous, stupid, plain dirt cheap" if Buffett still held it and there was no scandal around it.  Instead, the Buffett acolytes pour into JPM when Buffett says read Dimon's reports, and when Buffett bails on WFC and buys BAC, the acolytes load up on BAC.

 

Voting machine now.  Don't forget the weighing machine later!  Cheers!

Funny, but true! Everyone wants to pay up when they are a "superior" business, but when they hit some trouble, they don't want to know!

 

Bank of America has done fantastically over the last 10 years in terms of share price, but that's only because it was coming off such a low base. Even before the financial crisis, I don't remember them ever having a greater than 1% return on assets, so what Moynihan achieved was just extraordinary. The issue I see is that the turnaround here is now complete, and in today's hyper competitive, low interest rate environment, I really struggle to see how a large money center operation like Bank of America can generate much beyond its current ~1% ROA. I still think it's cheap enough that it will do well against the broader market. I would anticipate a return over the next decade of about 11-12% (assuming the regulatory environment stays constant). Nothing to be sneezed at when Vanguard are forecasting a 3-5% return in US equities.

 

Wells on the other than trades at a much steeper discount to book. While it has issues, it is in a much better condition than what Moynihan took all those years ago when many thought BAC wouldn't even survive. I think they have the right CEO in charge, and I think in the long term the problems will be fixed and that the business should stabilise at a 1% ROA, similar to JPM or BAC. It had better returns than this in the past, but I wouldn't even bake that into my estimates going forward. Hopefully Scharf is the right man for the job and he can get a 10 year run at it, like Moynihan got. If he can just get this thing return a 1% ROA/10% ROE, my numbers have Wells giving something more like a 15-16% return over the next 10 years.

 

None of this answers why Buffett sold, quite frankly, I have no idea why he did this. Perhaps he's just had enough of Wells and its constant issues, perhaps the company has become tainted in his eyes, perhaps he is fed up having to intervene (did he not approve Tim Sloan for the top job behind the scenes?), perhaps he doesn't like it because it's no longer a wonderful business? People seem to forget that Buffett does make mistakes (and probably increasingly so in the last few years). I seem to remember him selling a chunk of Moodys at the bottom of the financial crisis, it's 10 bagged from there. He's also recently invested in mistakes like IBM, Kraft, Seritage, Occidental, Precision, etc. I think Wells can still do ok even after Buffett has sold.

[Mephistopheles]

Let's see what Munger does at DJCO. If he keeps the WFC position that further makes the Buffett sale irrelevant.

 

Aside from all the short term scandals. A big risk I see for WFC is their low presence in Investment Banking. If rates go to zero or negative, it will be worse for WFC than BAC because at least Merrill will insulate the hit to the retail/commercial bank.

[benhacker]

I never thought that I would see the lack of IB as being a negative for a bank :)

[Viking]

There was a time when almost every numbnuts on here would have paid book value as a hugely, cheap discount price for Wells Fargo.  I never owned it then.  The only big bank I've owned over the last 12 years has been all of the BAC I bought at $5 back in 2008, some more at $13 and finally we bought quite a bit this year at $19.  I owned some Wells Fargo in 2008 when I bought it at $13 and sold a couple of years later at $27.  I have not bought Wells till this March.

 

Buffett says that the markets are a voting machine in the short-term and a weighing machine in the long-term.  In the short-term, Wells has been hammered with one scandal after another, one fine after another.  Yet, here we are and they are still the 3rd most dominant U.S. bank after JPM and BAC, and globally less than 15 banks are anywhere near its size.  They are still making money hand over fist with all of these fines and regulatory constraints.  They are still one of the best capitalized in the current scenario and under the most stressful scenarios that the FED can think of.  We are at zero short-term interest rates and they are still making money.  It is trading at 0.6 of book, a price most would say was "outrageous, stupid, plain dirt cheap" if Buffett still held it and there was no scandal around it.  Instead, the Buffett acolytes pour into JPM when Buffett says read Dimon's reports, and when Buffett bails on WFC and buys BAC, the acolytes load up on BAC.

 

Voting machine now.  Don't forget the weighing machine later!  Cheers!

Funny, but true! Everyone wants to pay up when they are a "superior" business, but when they hit some trouble, they don't want to know!

 

Bank of America has done fantastically over the last 10 years in terms of share price, but that's only because it was coming off such a low base. Even before the financial crisis, I don't remember them ever having a greater than 1% return on assets, so what Moynihan achieved was just extraordinary. The issue I see is that the turnaround here is now complete, and in today's hyper competitive, low interest rate environment, I really struggle to see how a large money center operation like Bank of America can generate much beyond its current ~1% ROA. I still think it's cheap enough that it will do well against the broader market. I would anticipate a return over the next decade of about 11-12% (assuming the regulatory environment stays constant). Nothing to be sneezed at when Vanguard are forecasting a 3-5% return in US equities.

 

Wells on the other than trades at a much steeper discount to book. While it has issues, it is in a much better condition than what Moynihan took all those years ago when many thought BAC wouldn't even survive. I think they have the right CEO in charge, and I think in the long term the problems will be fixed and that the business should stabilise at a 1% ROA, similar to JPM or BAC. It had better returns than this in the past, but I wouldn't even bake that into my estimates going forward. Hopefully Scharf is the right man for the job and he can get a 10 year run at it, like Moynihan got. If he can just get this thing return a 1% ROA/10% ROE, my numbers have Wells giving something more like a 15-16% return over the next 10 years.

 

None of this answers why Buffett sold, quite frankly, I have no idea why he did this. Perhaps he's just had enough of Wells and its constant issues, perhaps the company has become tainted in his eyes, perhaps he is fed up having to intervene (did he not approve Tim Sloan for the top job behind the scenes?), perhaps he doesn't like it because it's no longer a wonderful business? People seem to forget that Buffett does make mistakes (and probably increasingly so in the last few years). I seem to remember him selling a chunk of Moodys at the bottom of the financial crisis, it's 10 bagged from there. He's also recently invested in mistakes like IBM, Kraft, Seritage, Occidental, Precision, etc. I think Wells can still do ok even after Buffett has sold.

 

When comparing WFC and BAC how are you thinking about:

1.) interest rates over the next 10 years, especially the potential for negative interest rates?

2.) business diversification

 

It looks like investment banking / markets / wealth management businesses are booming/performing well; helping to offset credit charge offs at BAC and JPM.

 

I think the big banks are cheap but am hoping they get cheaper before getting back in; until a vaccine is available the economy will continue to limp along.

 

BAC under $23 would be tempting and we are almost there. Moynihan’s comments at last investor conference: they have $30 billion in excess capital and are hoping regulators let them re-start buybacks; capital ratios improved in Q2. Diversified business model is really paying off right now.

 

Tax loss selling could be interesting this year... so many sectors in the toilet year to date. Throw in the virus and a fall resurgence in cases/deaths, potential vaccine, continuing recession, US election and increasing potential for US constitutional/political crisis. Buckle up!

[Parsad]

Let's see what Munger does at DJCO. If he keeps the WFC position that further makes the Buffett sale irrelevant.

 

Aside from all the short term scandals. A big risk I see for WFC is their low presence in Investment Banking. If rates go to zero or negative, it will be worse for WFC than BAC because at least Merrill will insulate the hit to the retail/commercial bank.

 

What Buffett and Munger do should be irrelevant to us, otherwise we should be in ETF's.

 

By the way, I think Buffett sold WFC because the image issue doesn't fit the Berkshire image, and if they could get tax losses, crystalize some gains and replace it with BAC...it's win-win.  Plus he can buy up to 24.9% of BAC.  Cheers!

[Cardboard]

"I never thought that I would see the lack of IB as being a negative for a bank :)"

 

That is an awesome point. Merrill was considered radioactive trash and Citi??? Last time I looked Goldman wasn't trading at fat multiples.

 

Just goes to show how little people remember only 5 to 10 years out.

 

To me it is pretty simple: all banks are very similar as they do the same business and in same macro environment.

 

Right now investors hate WFC but, love BAC and JPM. Eventually this thing wears off like it did with BAC. Then it is earnings that matter.

 

Cardboard

[Broeb22]

To all the people who keep asking about macro issues like interest rates and regulatory issues, don’t all those things affect the banks more or less equally?

 

Sure some investment bank operations may benefit, (big if) but I could point to a whole bunch of other activities that the Fed is engaging in that would for instance depress bond trading revenues.

 

If Wells is already trading at a valuation consistent with other global banks in low or negative interest rate environments, then won’t Wells do relatively better than the other large US banks which are trading like interest rates are still higher?

 

In other words, regardless of your view of the direction of interest rates, Wells is a better value than it’s most direct competitors.

 

 

[CorpRaider]

I never thought that I would see the lack of IB as being a negative for a bank :)

 

Definitely is not for me.  If Scharf came out with a plan to emulate the more "diworsified" business models of BAC and JPM I would be looking to exit.  Give me lumpy and better returns any day.

[Mephistopheles]

I know, IB is a black hole and huge derivative books and all that. I know what happened in 08. But I was only saying if NIM margins go to zero, all else equal it would have a disproportionately worse impact on WFC then BAC, would it not? Maybe the valuation is already priced for this.

 

Btw I do own a whole lot of WFC. Just trying to kill my thesis