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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35275  
Subject: Re: Considering WNA- Date: 12/2/2009 4:42 PM
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A short digression---

3) The only real reason that Wells was ever in the news for being a problem bank had everything to do with the following 3 details:

FWIW, I have a very simple 20,000 foot view of Wells' problems:

(1)
They might have a gigantic pile of not-yet-recognized losses.
I don't think it's that bad, but let's simply assume it's true.
Let's pick a random number out of thin air, $80 billion.
I think if they had that much more capital today, almost every doomsayer would be satisfied.
For a sense of scale, that's 62.5% of their current market cap.

(2)
They are making a pretty steady $40 billion/year pretax pre-provision income.
(it will probably be higher in a few years, but let's say it's steady).

(3)
Because of the way the world works, problems in (1) won't have to
be recognized tomorrow, but spread over time.

The key point that so many folks miss is that #1 is finite, and #2 isn't.
A perfectly plausible scenario is that because of #3, they keep the
doors open, they use all of #2 to cover #1, thus earning nothing for two years.
Then, they start absolutely printing money.
$4-$5 net earnings on the common compares attractively to a current price of $27.50,
even if you have to wait a couple of years twiddling your thumbs.

The big bank with about the lowest average cost of capital around will
likely prosper mightily---most folks seem to have missed the part
about their wonderful well-managed organic growth rate.

Sorry for the digression, I'm just a visitor here.


Jim


Sadly, I just sold my WFC-PL at about $900, having bought at $359 in the spring.
Still a wonderful security, but really ugly for me personally tax-wise.
It looked a lot better at 20.9% yield (15.7% after tax) than at 8.3% (6.25% after tax).
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