The reasons of trading Wells Fargo
Twenty years ago, Buffet purchased $290M for 10% Wells' common stock. His reasons were 1) strong management on huge assets, $56B back then 2) good performance, 20% return on equity and 1.25% on assets 3)low risk of having troubled real estate loan losses.
He did increase Wells position along the path, even after 2008 crisis even all three reasons have altered to paths. See the latest BKA's position. Buffet's wisdom is invaluable asset for many. But he also said, "What's required is thinking rather than polling". So what can we think of Wells now?
Wells assets rose to a few hundred billions after acquisitions and acquisition and growth. The current CEO was planning to retire but delay after Wachovia's acquisition. The integration of Wachovia is a daunting task in addition to mortgage loan problem. The bank is just getting too big. John Stumpf indicated that Wells will sell its brokerage division if price is right. This division was a big profit contributor in 2008/2009. Shrugging off this then cash cow could smell something is going on.
Another recently Wells development was the sudden departure of CFO. That was not a planned retirement. Wild imaginations were rampant especially that was at the time a new mortgage disclosure procedure started. That is not a good sign at all. Wells' position on loan has not been changed after 20 years. It is still the most important business for Wells. Given current California trouble, loan losses, in our opinion, will not be a low probability event, like 20 years ago. At least the process is prolonged to a point that performance is as stellar as before. That is the next point.
Wells' return on equity is 10.5% and 1.01% on assets. Of course, their size has been more than double. The good sign is great operation margin at 30% plus. But can we see a slowing down? Even with a special dividend of $7c, it is still a long way to back to normal dividend. Since it just revised dividend a week ago, it won't be soon to do that again.
Anyway, we don't think Wells is as attractive as before, given current price about $32. But Buffet is right when price is right and we will follow: we welcomed the decline because it allowed us to pick up many more share at the new, panic prices.
The new, panic prices are not present.
He did increase Wells position along the path, even after 2008 crisis even all three reasons have altered to paths. See the latest BKA's position. Buffet's wisdom is invaluable asset for many. But he also said, "What's required is thinking rather than polling". So what can we think of Wells now?
Wells assets rose to a few hundred billions after acquisitions and acquisition and growth. The current CEO was planning to retire but delay after Wachovia's acquisition. The integration of Wachovia is a daunting task in addition to mortgage loan problem. The bank is just getting too big. John Stumpf indicated that Wells will sell its brokerage division if price is right. This division was a big profit contributor in 2008/2009. Shrugging off this then cash cow could smell something is going on.
Another recently Wells development was the sudden departure of CFO. That was not a planned retirement. Wild imaginations were rampant especially that was at the time a new mortgage disclosure procedure started. That is not a good sign at all. Wells' position on loan has not been changed after 20 years. It is still the most important business for Wells. Given current California trouble, loan losses, in our opinion, will not be a low probability event, like 20 years ago. At least the process is prolonged to a point that performance is as stellar as before. That is the next point.
Wells' return on equity is 10.5% and 1.01% on assets. Of course, their size has been more than double. The good sign is great operation margin at 30% plus. But can we see a slowing down? Even with a special dividend of $7c, it is still a long way to back to normal dividend. Since it just revised dividend a week ago, it won't be soon to do that again.
Anyway, we don't think Wells is as attractive as before, given current price about $32. But Buffet is right when price is right and we will follow: we welcomed the decline because it allowed us to pick up many more share at the new, panic prices.
The new, panic prices are not present.
posted by Intl.investment.services at
9:38 AM
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