Kiltacular

...am I missing something?

I have to believe this "lend more" is mostly political posturing. If you actually listen to the CEO's of well run banking institutions -- like WFC and USB -- they say that they want to lend more but qualified borrowers aren't borrowing. Stumpf, from WFC, has literally said his biggest current "worry" is finding new, worthwhile loans to keep his loan book from shrinking. The idea that the Fed's are telling the banks to loan more AFTER we just had a meltdown because of poorly made loans is mind-boggling -- they aren't this stupid...hence, I believe it is political posturing by Obama as his poll numbers continue to implode. "Fat-cat-bankers" and all that..... Banks make loans...it's their business....this is akin to telling Kraft you want them to sell more cheese or Coke that you want them to sell more soda...it's not like you have to say it twice (or once, for that matter). Assuming this is it for Wells on the dilution front, this hasn't turned out that bad but it hasn't turned out good. IIRC, Wells had about 3 billion shares outstanding before the Wachovia deal. They sold some shares to do the deal but the Feds have now required two more capital raises after force-feeding Wells the TARP money in the first place. Wells approximately doubled its size with the acquistion and share count it now up about 65% so the deal should still be accretive once the dust settles..especially so if the proposed $5 billion plus in annualized cost saves comes to fruition and the Wachovia book has been written down accurately. Wells still looks really cheap down here.

Thanks for all the interesting and insightful answers.

sorry guys...rate is 2.5% fixed. I had that in there but somehow screwed it up. It's not a margin loan so can't be called. I will edit the question to include the rate.

see question

Classic!! ;D

I think this is correct. In fact, I don't think we saw steady and continuing inflation until 1913 -- the year the FED was created. Buffett and Munger said at a meeting many years ago (in my OID files somewhere) that they invested (in the U.S.) based on the reality of continuing inflation. Given the structure of debt -- both business and personal -- in the United States, I think steady (but moderate) inflation is good. Given the current debt structure, real deflation would lead to a massive depression in my opinion. I think it could easily be argued that the debt structure in the U.S. isn't necessarily optimal (I don't know), but it seems to me given what we've got, true deflation is a disaster. We've got to print and monetize right now, don't we?

This strikes me as an interesting fact. It fits with the thesis of "Twilight in the Desert".... If the Saudi fields were still overflowing with the light, sweet that has flowed from their major fields in abundance for decades, would they still be making this switch?

Uncommon.... Good post....

Golly jee, this makes me wish I had an un-married daughter. On another note, I'm a huge fan of Byrne and have actually made a lot of decisions about others based on their views of him. I'm not positive I'd want him as a CEO of the only business I owned but I'm certain I'd want him as a friend, partner, honest critic, etc. He just seems like a great guy and he's gotten less credit than he deserves for highlighting this disgraceful and illegal behavior that has been going on for some time. All you had to do was to see what these guys resorted to with Mr. Watsa to realize the depths of depraved venality these people were willing to lower themselves.

This woman may have no idea what she's talking about. It is becoming a sad spectacle. Once it became clear to her that Buffett was upset about some of the details in the biography (my guess is that the details about his relationship with -- and depiction of -- his dead wife were too much to bear), it seems to me that she should have kept quiet for a bit and hoped for Buffett's hurt feelings to subside. My guess is that would have happened with a bit of time. (It's only natural for a person whose life if taken apart in such detail to feel a bit of antipathy in this situation. But, Buffett is a big person and he would have come around -- at least, that's my guess.) Then, she could have kept her credibility. I mean, outside of us investors, no one would have ever heard of her had Buffett not granted her such unfettered access. Her behavior (and apparent cluelessness about the basics of Berkshire and Buffett's actions) is making me question much of what she wrote in "Snowball"...what a disappointment.

This seems like a key insight, fwiw. If (and when) the ratings agencies downgrade a company, their decisions often close off the ability of an entity to raise additional capital. They are then often accused of causing the downfall their ratings were supposed to predict. They seem to be in a permanent Catch-22 situation with this issue. Thus, I don't see how replacement entities would be any better as this problem wouldn't go away (as far as I can reason). Buffett alluded to this, IIRC, in some interviews not that long ago. Yet, they do serve a constituency. It seems like the major ratings agencies provide cover (read: job protection) for a lot of investments by major pension funds and other large corporate investors in a fiduciary (or similar) situation. Even Berkshire comments (in its annual report and Q's) on the ratings given to its bond investments. It may be required to do so but even if that's the case, that's still a moat, no? When Moody's got to $18 recently, I almost posted on it but it didn't spend long there. The recent swoon was caused by a court decision that, as I understand it, removed a legal protection they had relied on to protect them from liability for their ratings decisions. I believe it was a 1st amendment issue. I guess there is a chance they get bankrupted if enough cases go against them. I'd be surprised if Buffett thinks that the moat is permanently damaged and yet the sales suggest that is exactly what he thinks...esp. as the sales have continued even though he's gotten the position below 20% (above where it was an equity method investment). Maybe he is just selling because he's annoyed at the downgrade but that's not reallly his style (in my opinion). If Moody's does retain its dominant position (and keeps its massive returns on tangible equity), it is probably cheap below $20. I don't think I'm smart enough to figure it out but when I contemplate what they would be replaced with, I tend to think it is worth a risk at some price.

Not if you want tenure! ;D I think Munger likes to quote Max Planck: "Science (academia) advances one funeral at a time." In theory, though, you're right and in all likelihood, many of the most ingenious and truly groundbreaking types probably do learn this by going to college -- though I'm not convinced most of the same people learn this in the courses themselves. Buffett likes to say that: "The key to life is being the batboy for the right hitter." A corollary being that they key to life involves figuring out who the right hitters are.

Fwiw, I think txlaw has it correct. Munger, to his credit, is highlighting how rare it is for someone (anyone) to acknowledge they are wrong. It is particularly difficult for someone of Greenspan's public stature to acknowledge such. IIRC, at the WESCO mtg. in May 2008 (not this year...when I missed the mtg), Munger addressed Greenspan's approach and, paraphrasing, basically said that Greenspan had an ideology that worked well and figured it would work well no matter to what extreme it was taken....IIRC, there was something about axe-murderers. This was before the total meltdown but after the Bear meltdown. I give Munger credit for giving Greenspan credit for simply saying: "I was wrong". That said, the key to the success of Munger and Buffett is that they typically know they're wrong before they're wrong. How's that for some Greenspeak?! ;)

The more I hear from Sokol over the last 3 - 5 years, the more I like him. He seems like a perfect future Berkshire CEO...not promotional at all but still completely confident and yet humble. I like these two comments as well: "I could name to you two or three DOZEN world class CEO's in [berkshire]. I'd be thrilled to work with or for any of them." "I'm not aware of a corporation in the world that has the depth of CEO leadership that Berkshire has." Thanks for posting.

Don't forget, though, that there are currently over $2 billion in non-cash amortization charges related to amortizing the value of the acquired deposits from Wachovia. These reduce GAAP rearnings but are entirely non-cash and in fact exceed the total of the preferred dividends. With all due respect to seeking alpha and others, I think almost all of these articles are nonsense. Some months ago, the issue was tangible equity. Now, Wells has produced over $20 billion against the SCAP requirement of $13 billion and change (that includes the $8 billion capital raise...which they clearly didn't need and which Kovacevich was so pissed about)....in just a few quarters. Now, the anti-Wells contingent has moved on to Mortgage Servicing Rights. There is nothing new here. Wells has made it clear that the change in value of the servicing rights is inversely correlated with new originations and they have always said this (as long as I've been following them). The supplemental package put out this quarter says that things are going better than they expected on all fronts. The merger will cost less than planned, the merger savings will be as planned, the pick-a-pay portfolio is working out better than planned, etc., etc. To put it it nicely, I'm highly suspicious of the comments I saw from Dick Bove recently. They are non-sensical. My feeling is that Wells is in the driver's seat with regard to the government. I believe the goverment actors are posturing for regulatory power. Wells is one of the only banks left that doesn't need help from the gov't. Though they are profiting from the massive Net Interest Margin from low short rates, that is the only thing keeping the rest of the banking industry close to solvent. If the gov't takes that away, they'll bankrupt everyone. Wells is doing much better than it seems, in my opinion. I'm curious to see what the anti-WFC people will come up with once Wells pays back the TARP -- which I think hasn't happened yet because of the gov't. The supplement to the Q3 release it worth a review for those interested. https://www.wellsfargo.com/pdf/press/3Q09_Quarterly_Supplement.pdf

If things work out reasonably well for WFC, I think it remains ridiculously cheap. If you start with 2000 and go through 2007, there have only been two years where net charge-offs exceeded even 1% of average loans -- those years were 2001 and 2007, where net charge-offs were 1.09% and 1.03%, respectively. All the other years had net charge-offs were below 1% of average total loans. Average total loans are now roughly $800 billion for WFC. Assuming loan balances don't decline forever, one can model appoximately $8 billion in net charge offs for a full year. In just Q3 of 2009, net charge-offs were over $5 billion and the provison for losses was around $6 billion (thus about $1 billion was added to the allowance in Q3). These are relatively massive charges. I figure that WFC should earn around $24 billion after tax when loan losses normalize. It doesn't take much (a 13.5x multiple) to close in on $70 a share for WFC. One can argue that things will get worse...but that's a risky dance if you assume that they will ultimately get better. As soon as net charge-offs start to drop precipitously, the stock should take off. I agree that WFC looks to be cheaper than USB...though USB has traditionally had even lower net charge-offs than as a percentage of loans than WFC....Wells had traditionally had the higher net interest margin. Still, Buffett paid about $31 a share for a billion of USB in 2006...like Wells, they are able to grow earnings a very decent clip while paying out a very large percentage of their earnings in dividends....both companies are extremely profitable when you look at the growth against retained earnings. And, as has been pointed out before, both USB and WFC have been able to post large portions of their profits via non-interest income and this is a stabilizing force for both and, I think, allows both to avoid reaching for yield by making poor loans (but still having good ROA's and ROE's). My 2 cents

Thanks for the follow-up Ben.

Thx for the detail twacowfca.

Hello Ben, Do you mind putting up the CUSIP for WNA-p? Thanks for the info... Kiltacular

Is "LCSHF" the correct pink sheet symbol -- do they only trade OTC in the States? TIA (interesting company)

wfc-pl still yields over 8%.....$75 a year on a $900 current price. The yield is tax advantaged until the laws change in a few years (in the U.S.)....not sure how it works in Canada. I actually can't believe this thing still has such a high yield. Granted, it is non-cumulative, but I think the odds of Wells not paying on it are miniscule and they have to pay as long as they have a dividend on the common. The final kicker -- for those who want to collect this for a long time (say, retirees) -- is that Wells can't call the issue until the common trades over $200 (or thereabouts) for 20 of 30 trading days. Thanks to this board -- it was either ericd or oec -- that highlighted this one.

This is a subject which obviously affects everyone differently. If you're a pro managing other peoples' money...well, most people care about the top line and the business is marketed with top-line results. However, the fact is, if you're a citizen in the U.S. of, say, NYC or California and you're already in a high federal bracket, you're going to see your short-term gains taxed at almost 50%. Think about that. If we're talking about "risk-adjusted" returns, then if you're in a high-bracket (and whose goal isn't to be?), this issue is something to be considered for the long-term. If you're doing 25% a year but it requires selling, more often than not, in under 1 year, you're looking at about a 13% after-tax return. Can you get better than 13% per year (with less risk) by holding some terrific stalwart investments over the long term? The fact is, though, if you're marketing returns, this mostly becomes irrelevant even though it should be top of mind. I think it mosly comes from the fact that most potential clients will have tax-deferred accounts and therefore the industry is not structured with this discussion in mind. Within a couple of years (in the U.S.) dividends will once again be taxed at your marginal income tax rate while, IIRC, the long-term capital gains rate will only be rising to 20% at the federal level. This issue is on my mind with respect to some of the high-dividend preferreds I own. Given that I used to live in California and now live in NYC, these issues matter to me. Also, it sounds like uccmal was suggesting that in Canada you can get back previously paid gains with current losses -- not so for individuals in the U.S. (though the rules are different for corporations). It's a less important issue but nonetheless can influence things. It's an important question over a 30 year time period. Still, I've made plenty of mistakes trying to get a long-term gain and holding too long. But, there is a chunk of my portfolio where I buy and hold (no matter what the price does...within reason) as long as the business value appears to be growing nicely.

On the subject of CEO's of the various Berkshire subsidiaries, I tend to think this will work out okay. Off the top of my head, I can think of the following: CEO of Shaw has retired since Berk acquisition...replacement seems to be okay. Same can be said of Gen Re. CEO's of Borsheim's, See's, Fechheimer, Nebraska Furniture Mart, Ben Bridge, NetJets, and Mid-American (where Abel took over for Sokol) have all been replaced at various points over the years. Granted, we don't know how Sokol will work out at NetJets and we don't know how the replacement at Ben Bridge will work out. We do know that the replacement at See's took their earnings up 50% in short order. Obviously, the bigger operations matter most...but I suspect that the bench is deep at Iscar, Marmon, GEICO, Mid-Am and even at Jain's shop BHRG. I think the cultures that get built up over the years at these places help develop deep benches. Yes, it is true that people want to impress Buffett but I don't see how that won't happen when Sokol is in charge.....if you have the right person at the top, decent people will want to impress him or her. As for Berkshire's size, I agree with Ericopoly that what has slowed down Berkshire has been the overvaluation of the equity market since the late 1990's. Obviously, a smaller Berkshire wasn't handicapped in the same way by an overvalued stock market when it was small. Still, the market was never as overvalued during all of Buffett's career as it was in the late 1990's....who knows how a much small Berkshire would have done in the face of such vast overvaluation. And, it only took Buffett about 6 months to put to work all his excess capital after stockpiling it for 5 to 10 years. I mean, he himself said: "I'm tapped out". All that said, given the leverage that FFH carries, I think it is likely that it increases intrinsic value per share slightly faster than Berkshire. I would go with much faster IF FFH had the kind of insurance operations as Berkshire...particularly GEICO (which I feel will triple its market share over the next 15 to 20 years....which would still only put it at 20% of the auto market....there's a reason they're spending $700 million per year at GEICO just on advertising). Also, I can see how in, say, 5 years, Brk's position in Wells Fargo is at $20 to 30 billion, position at Goldman worth $12 to 15 billion, KO at $15 to 20 billion (I think they're back on track and have followed them for years), AXP at $12 to 15 billion, Burlington at $12 billion or more, PG, USB, JNJ all have good to decent prospective 5 year returns from here, in my opinion. Large cap., super high quality companies like Berkshire owns have not been this cheap in a long time. Even if you check out the lows in the '70's.....and look at the PE's on companies like KO and JNJ at the bottom....they're weren't much lower. Prospective returns on the Berkshire equity portfolio are a heck of a lot better than they've been in a long, long time....probably since the late '80's or early '90's. My 2cents

Does anyone know how to find the CUSIP's of some (all?) of the Berkshire insured muni-bonds? TIA for any thoughts, comments, etc.