Thread regarding Wells Fargo & Co. layoffs

Sorry, OP. It’s the corporate yes-men who contributed to the position Wells Fargo is in today.

This organization needs independent thinkers who will challenge poor management decisions and guide them to be better. Yes-men are a dime-a-dozen.

https://www.fool.com/investing/2020/10/30/where-will-wells-fargo-be-in-1-year/

The key is getting the asset cap lifted.

Found an article from Feb 19, 2020. 6 analysts at the time were still calling Wells Fargo a Buy, saying “you’ve got to be a little early to catch the rebound”. And Wells Fargo “ is still a a powerful profit engine”.

WFC was trading at $45.96 at the time. Anyone who would have listened to them would have lost half their money.

My point being that it’s all speculation. And I especially do not pay attention to people on the inside who are promoting the stock despite all the negatives.

WELLS FARGO STOCK CONTRARIANS

After more than three years of scandals and fallout at Wells Fargo & Co., a little improvement will go a long way. So says the small group of analysts who still recommend buying the stock.

A flurry of downgrades in recent months pushed analysts’ outlook on the San Francisco-based firm to its worst since the financial crisis. Still, as new Chief Executive Officer Charlie Scharf conducts a strategic review and works through the bank’s myriad regulatory issues, some see reason to be bullish.

Just six of the 31 analysts tracked by Bloomberg have a buy rating or its equivalent, making it the least popular bullish bet of the largest U.S. banks. Since September 2016, the firm has been reeling from scandals that led to the exits of two CEOs and kept the stock relatively flat while the broader KBW Bank Index gained about 50%.

“It’s not a turnaround story overnight,” said Kyle Sanders, an analyst at Edward Jones who has suggested buying the stock for more than a year. “You’ve got to be a little bit early if you want to catch the rebound, and that’s the bull case.”

Wells Fargo has reported muted results for years as fallout from a series of scandals across the firm drove up legal costs and hampered growth. In recent quarters, the hit to earnings has been compounded by falling interest rates.

The bulls argue this has masked what is still a powerful profit engine amid strong consumer credit quality and a sustained economic expansion. That can shine through as legal costs eventually dip and Scharf finds more expense savings in other areas.

“The opportunity to improve results is quite easy and will be really powerful for them,” Sanders said. “It’s very easy to see them trim a lot of fat around the company. They’re really inefficient compared to their peers.”

Renaissance Macro Research analyst Howard Mason agreed, arguing that the bank’s results are due to improve, following rivals that have set profit records in the past two years, thanks in part to lower tax rates.

“It’s a very strong community bank with a wonderful distribution network,” Mason said. “I would make the case that earnings are meaningfully below normal because of this very inflated efficiency ratio, and that is going to come down.”

The fallout from years of problems at Wells Fargo has dragged into 2020. Former leaders including ex-CEO John Stumpf were hit with civil charges, and Scharf has warned investors that the bank still has a long way to go.

Wells Fargo set aside more than $1 billion for litigation in the fourth quarter, bringing the total for the second half of last year to more than $3 billion. The bank has yet to settle with the Department of Justice and the Securities and Exchange Commission over its fake-accounts scandal, and it faces an array of other open probes and sanctions including a Federal Reserve-ordered growth cap.

“It’s a lot of stuff you already knew,” said Morningstar analyst Eric Compton, who upgraded the stock from hold to buy last month. “Scharf just started, so it’s going to take him some time to turn this around.”

Here is a recent article with an opposing viewpoint:

*special note, WFC is already trading $2 cheaper than it was just 8 days ago when this article was written.

• Bottom line to this article is: the problems at Wells are transforming from temporary problems to more permanent problems.

• Both this article and the article from OP are Just pure speculation. As is OP’s opinion.

WELLS FARGO TRANSFORMING FROM A VALUE BUY IN TO A VALUE TRAP

Oct 23, 2020

Wells Fargo & Co. (NYSE:WFC) is preparing to sell its asset management business for around $3 billion as it struggles to make ends meet during the economic recession sparked by the Covid-19 pandemic. According to Reuters sources, the bank has been in talks with potential buyers, though no deal has been reached yet.

The sale will likely be made in preparation for an expected tsunami of losses from bad loans. In the second quarter, the bank booked a $2 billion loss as it set aside reserves for bad loans, and in the third quarter, it reported net income of around $2 billion compared to $4 billion a year ago, which it mainly attributed to customer remediation and restructuring.

Wells Fargo has been struggling ever since its fake accounts scandal in 2016, but due to its status as one of the largest U.S. banks, many investors still considered it to be under the "too big to fail" umbrella, making it attractive as a value buy. However, now that the bank is not only facing an asset cap, but is also considering downsizing of its own accord, could this value buy have already become a value trap?

Recent earnings results

For the third quarter, Wells Fargo reported revenue of $18.9 billion, down from $22 billion in the prior-year quarter. Net interest income dropped 19% to $9.4 billion, while non-interest income declined 8% to $9.5 million. Average deposits increased 8% to $1.4 trillion, while average loans were down 2% to $931.7 billion.

The bank kept its allowance for loan losses at $20.5 billion, the same as the second quarter but still representing a higher percentage of assets than most other U.S. bank majors. The liquidity coverage ratio stood at a 134%, which is above the regulatory minimum of 100%.

CEO Charlie Scharf had the following to say:

"Our third quarter results reflect the impact of aggressive monetary and fiscal stimulus on the US economy. Strong mortgage banking fees, higher equity markets, and declining sequential charge-offs positively impacted our results, while historically low interest rates reduced our net interest income and our expenses continued to remain elevated. We continue to provide support for our customers having helped more than 3.2 million consumers and small businesses by deferring payments and waiving fees."

The Wealth and Investment Management segment, which consists of wealth management, investment and retirement products and asset management, reported revenue of $3.794 billion altogether, a sharp drop from $5.141 billion in the prior-year quarter. Client assets under the asset management business ended the quarter up 21% from the prior year to $607 billion, while wealth management assets remained flat at $229 billion.

Selling the asset management business

Wells Fargo's asset management business manages approximately $578 billion, and analysts expect that it could fetch a price tag of around $3 billion. The bank clarified that the sale would not include its other wealth management operations.

Since its liquidity coverage ratio is already at 134%, why would Wells Fargo need to divest a portion of its business? A few potential reasons come to mind, primarily long-term restructuring plans and the expectation of large loan losses from the economic recession.

Scharf has indicated that one of the ways he wants to transform the company after joining as CEO last year is to cut costs to the tune of $10 billion annually, so divesting an entire business segment seems a natural step in that direction.

Additionally, Wells Fargo stands in a difficult position amidst the massive business lending efforts undertaken by the U.S. government in order to lower the number of bankruptcies and job losses from the recession. Like the other bank majors, Wells Fargo participated in the government loan programs, but unlike competitors, it was forbidden from earning anything on the good loans, effectively creating zero upside and unlimited downside. This additional restriction was in penalty for the fake accounts scandal back in 2016.

Thus, it stands to reason that Wells Fargo will face higher loan losses than other banks. The decision to downsize seems like it could be a reflection of these issues, which spells trouble for the bank's long-term prospects.

Valuation

As of Oct. 23, Wells Fargo's stock price stands at $23.28 after a decline of 56% year to date and 54% over the past 12 months. The GuruFocus Value Chart rates it as a potential value trap; the price is so cheap that it carries a high chance of being an indication of permanent damage in the underlying company.

While value investing often involves investing in cheap stocks that are undergoing temporary issues, it seems like Wells Fargo's issues are becoming more permanent as it seeks to cut costs, even at the expense of getting rid of a segment that none of the other major U.S. banks are offloading. This is also a point that management seems increasingly resigned to. While Wells Fargo will likely continue to serve customers and generate profits for many decades to come, that alone doesn't make it an attractive investment.

The way it is right now? Wells will be a goner

I think Wells Fargo is in a worse position than Wachovia was, prior to the financial crisis. We have a lot more negatives working against us than Wachovia did.

Plus we, the employees, have the added advantage of seeing all the negatives “from the inside of the organization.” The people writing the articles don’t get to see what a true hot mess this place is.

@ptj+17Iwm1z7. The 2009 Economic Depression is not the same as 2020. Totally 2 different things. Wachovia bought Golden West which was one of the major factors that caused Wachovia to almost go broke. If you look at their last few quarters before Wells bought them out, the Net Income was negative $11 billion per quarter. If you look at Wells Fargo, their balance sheet is in excellent shape. They made 2 Billion dollars net profit last quarter even after decreasing their dividend by 80 %, still under Asset Cap, negative image, Covid19, etc. what I am trying to say is that even all those negative factors combined, Wells Fargo still managed to generate positive $2 Billion dollars in one quarter that after writing off almost 1 Billion for ragulatory issues and another $1 plus Billion for Covid19 write downs. So, again Wachovia and Wells Fargo are not comparable.

OP that is a good article. I like that it spells out both pros and cons.

My question to you is: What, specifically, do you think makes Wells Fargo so unlike Wachovia? The reason I ask is because, unfortunately for me and many others, I worked for them and we would have never thought in a million years they would go out of business. But a stream of poor management decisions plus an economic fallout came together and quickly took the fourth largest bank in the US down.

So since you say you think comparisons are immature: let’s here an intelligent fact-based argument to the contrary.

“I personally” is redundant.