Thursday, April 9, 2009

Oh Yeah, Wells Fargo Seems Legit.

Hmmm. So, WFC is posting a Q1 profit closely aligned with their profit this time last year. In a Depression (and yes, based on the real U-6 figures of unemployment, that's where we are). Where fewer creditworthy borrowers exist. Where demand/availability for credit cards and mortgage loans has fallen off a cliff nationally. Where defaults are spiking on debt assets across the board.

Yeah, seems like there's very little to differentiate the economic activity from Q1 2008 to Q1 2009. I'm sure these earnings are A) Legit, and B) Bound to hold up. Oh, but wait, I think we all forgot something.

Wells Fargo had $151 billion of securities available for sale, and $865 billion of loans on their books, at year-end. Over a trillion dollars in total. With a very quick back-of-the-envelope calc (not delving into the unique stratifications of loan types, ratings, etc.), we see that with their current reserves, they have now built them to a very robust 2% of total.

That's right folks, 2%. For credit card receivables, automobile loans, mortgages, unsecured debt, etc. Only 2% of those are going to go bad, or asset prices devalue by that much. The banks have been right about everything so far, so I'm sure this is legit too.


Excerpts:

"Wells Fargo shares jumped more than 24% after the bank said that it expects to report record net income of approximately $3 billion, or 55 cents a share, for the first quarter. The company said that it is seeing strong operating results from its acquisition of Wachovia and that lending activity has been brisk. Wells said it expects consolidated net interest margin of approximately 4.1%."

"Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group," said Chief Executive John Stumpf in a news release. Wells Fargo's comments came amid a report in The New York Times that the 19 banks undergoing government stress tests will pass them and added steam to a morning rally in bank stocks. Citigroup shares rose more than 9%, J.P. Morgan Chase jumped about 13% and Bank of America gained 20%."

1 comment:

  1. These bankers are pretty much learning to turn "shit" into gold and show it on their balance sheets!

    ReplyDelete