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Re-doing my question on Wells Fargo!!!!!!!!!!!!!!!


Guest dealraker
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Ok, here it goes and I'd like a real discussion to begin on some of the particulars of Wells not a focus on how I may have worded my question in a somewhat stupid way--- which it certainly was.

 

There seem to be 2 camps: One that says "Wells is lying; they don't have any capital and they are tremendously understating problems."  For the record I do NOT believe this is true.  The second one is that "Wells has big losses but they've reserved for them and it is simply a matter of time, a short time, before they get back to normalized earnings and we all get rich owing the stock!"  I'm somewhat questioning this belief.  How?

 

Can Wells, with its moat of a great spread between what it earns and what it pays, get back to normalized earnings and grow wonderfully when America is very likely to downsize its debt?

 

 

 

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I don't believe there will be any $100b writedown happening in a single day.

 

But let's say for argument's sake that it will happen over the next 2 years... and that $50b per annum is PTPP (it looks to be that way).

 

Is today's stock price adequate to discount for 2 years of zero earnings?  I think so.

 

You can take 2006 earnings for both Wells & Wachovia and add $5b to it.  You get to about $20b after tax.  P/E today is therefore less than 7x.  Is that a good deal even though there will be no earnings for 2 years?  Sure, I think so. 

 

And we should remember that there are also reserves in place to handle some of the losses.

 

That's fine to point out that debt will shrink.  So what if credit card debt shrinks?  Wells has hardly any exposure to credit cars.  And so what if mortgages shrink?  They are gaining market share and terms are more favorable.  Then Wachovia's cross-sell is far behind Wells', and there is room for growth there.  Last, debt can shrink in real terms while growing in nominal terms (although for now it's shrinking in both).

 

 

 

 

 

 

 

 

 

 

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