WFC CEO Comments to Committee on Financial Services

[Parsad]

John Stumpf, CEO of Wells Fargo, spoke at the Senate Committee on Financial Services.  The Charlotte Business Journal has his comments.  Cheers!

 

http://charlotte.bizjournals.com/charlotte/stories/2009/02/09/daily37.html

[oec2000]

I watched some of the inquisition -oops, I mean testimony - today. What a circus - with a few exceptions, the congressional reps were more interested in grandstanding and playing the finger-pointing game for the benefit of their constituents. As usual, nothing much was achieved. We did find out what the CEOs earned the past couple of years and which banks owned/leased jets.

 

The best part was the exchange between Rep Maxine Waters and Ken Lewis (BoA). Waters asked an incoherent question about why BoA used the TARP injection to pay themselves fees for receiving the TARP funds. A dumbfounded Lewis curtly responded, "I don't know what you are talking about." I have to say, neither did I!

 

Watching the process made me wonder whether there is sometimes too much democracy in the US. People expressed disappointment with Geithner's no-plan yesterday. Somehow, I feel that if the President and Treasury Secy did not have to overcome the hurdles of American democracy they would be able to come up with a workable bank rescue plan in no time.

 

I reminded of the time when the pilots of Singapore Airlines threatened to go on strike. Prime Minister Lee Kuan Yew responded by threatening to shut down the airline and start a new airline. End of strike; no more labour disputes in the decades since; and SIA is today the strongest airline in the world sitting on $5b cash. This should work for Detroit.

 

Guess I've just stirred up a hornet's nest here. Let me just say that I do not support the banning of chewing gum. (Chewing gum is banned in Singapore.)

[calonego]

I second the controlled distribution of chewing gum...

I'd like to suggest Wrigley's if anyone is inclined.

 

 

[ExpectedValue]

 

The best part was the exchange between Rep Maxine Waters and Ken Lewis (BoA). Waters asked an incoherent question about why BoA used the TARP injection to pay themselves fees for receiving the TARP funds. A dumbfounded Lewis curtly responded, "I don't know what you are talking about." I have to say, neither did I!

 

Really? Because a few seconds later Pandit described what she was talking about -- the underwriting of debt related to the TARP

[Parsad]

I reminded of the time when the pilots of Singapore Airlines threatened to go on strike. Prime Minister Lee Kuan Yew responded by threatening to shut down the airline and start a new airline. End of strike; no more labour disputes in the decades since; and SIA is today the strongest airline in the world sitting on $5b cash. This should work for Detroit.

 

This does occur in North America, but it is few and far between.  Regan fired all of the air traffic controllers when they went on strike.  Walmart and McDonalds usually close a location if the employees succeed in unionizing.  While I think unions do serve a purpose for grievances, generally like the Senate and Congress, they simply employ tactics to get what they want added to deals.  I guess a free market system is based on the fact that humans are innately self-serving, but sometimes it would be nice to see individuals put their own self-interest aside for the greater good.  Cheers!

[oec2000]

Really? Because a few seconds later Pandit described what she was talking about -- the underwriting of debt related to the TARP

 

Could you please clarify? I thought the TARP funds involved only purchases of preferred equity directly by the govt from the banks. Why would underwriting be necessary? Pandit's comment was not too clear. If he was referring to debt that had to be sold to private investors, then what does it have to do with TARP?

[ExpectedValue]

Really? Because a few seconds later Pandit described what she was talking about -- the underwriting of debt related to the TARP

 

Could you please clarify? I thought the TARP funds involved only purchases of preferred equity directly by the govt from the banks. Why would underwriting be necessary? Pandit's comment was not too clear. If he was referring to debt that had to be sold to private investors, then what does it have to do with TARP?

 

whoops. I just re-watched the video on youtube. I believe Pandit's comments were actually referring to the underwriting fees associated with FDIC backed bonds.

[alertmeipp]

Any WFC holder here?

Any thought on the continuous down drifting?

[oec2000]

I guess a free market system is based on the fact that humans are innately self-serving, but sometimes it would be nice to see individuals put their own self-interest aside for the greater good.

 

Couldn't agree with you more! What makes it frustrating is that the vast majority of people can and will aside their self-interest if asked. The problem is the minority of self-interested people who manipulate people to their own selfish ends - politicians, union leaders, religious leaders, etc. They are able to do so because many people decide their social/political positions virtually the same way they make their investment decisions - based on sound bites from talking heads rather than their own in-depth analysis.

 

This is why I find investing so intriguing. It not only gives us interesting insights into the irrational human mind; the quantifiable nature of investment results makes it easy to prove and understand this irrationality. A major part of Buffett's genius is his ability to use quantitative analysis to cut through this fog of irrationality.

[arbitragr]

Any WFC holder here?

Any thought on the continuous down drifting?

 

I'm not a holder.

But 2009 is going to be extremely tough for two areas that WFC has a very large exposure to;

(i) the consumer

(ii) commercial real estate

 

Both areas lag distress in housing and the economy.

A general ratio used in the industry is; take the unemployment rate and add 1-2%. That ratio gives you a ballpark figure for loan loss ratios for the consumer business, especially with respect to credit cards.

Should we see unemployment rise towards the higher levels of economists' predictions, that is, 10-12%, then loan loss provisions will reach 12-14%, which is very alarming for banks that have heavy exposure to the consumer (i.e. WFC).

Add to that, you have commercial real estate loan loss provisions rising to record levels, and you have a really tough 1-2 years for most banks.

 

My view is that most retail banks will not see any upward traction until at least the middle of 2010 at the earliest. 2009 will be the year of the distressed consumer.

 

The market is not entirely incorrect with regards to the downward drifting as of late.

 

[Guest ericopoly]

Should we see unemployment rise towards the higher levels of economists' predictions, that is, 10-12%, then loan loss provisions will reach 12-14%, which is very alarming for banks that have heavy exposure to the consumer (i.e. WFC).

 

I have been reading the Q4 conference call transcript today.  You'd think, based on the info in the transcript, they Wells Fargo finds the current environment to be the greatest growth opportunity that ever was.  I mean, they are fully pedal to the metal. 

 

Read the transcript:

http://seekingalpha.com/article/117096-wells-fargo-amp-company-q4-2008-earnings-call-transcript

 

There is a total disconnect between what Wells Fargo is saying and what Mr. Market is saying about WFC.

[Packer16]

I disagree that a free market system is based upon a self-serving premise.  Where you see most of the abuse is non-free market situations, where individuals and/or companies can shield themselves from real competition and/or are in regulated industries where they stretch rules beyond what history or the regulators say are wise.  Competition focuses you on the customer and his/her needs which leads to better products and services and leaves little time shower yourself with wealth or other distractions.  This self-serving premise is what leads to a distorted view of free markets, anti-growth regulation and a collectivist excuse for regulation.

 

Packer 

[rkbabang]

I guess a free market system is based on the fact that humans are innately self-serving, but sometimes it would be nice to see individuals put their own self-interest aside for the greater good.

 

Couldn't agree with you more! What makes it frustrating is that the vast majority of people can and will aside their self-interest if asked. The problem is the minority of self-interested people who manipulate people to their own selfish ends - politicians, union leaders, religious leaders, etc.

 

This is very true.  The reason a political system ends up with this type of people at the top is that those are the type of people who want to be there.  Most people wouldn't want those jobs it is that small percentage that spend their lives trying to get into power that are the problem.  In a free market you need to have a product or service someone will willingly pay for to attain wealth, in a political system you just need to lie/cheat/steal/ or otherwise bully your way to the top.  This is why the scum always rises to the top in such an organization.  I lump union leaders in with politics, because unions are protected by the state to such a degree that they couldn't exist in the form that they currently do in a free market system.  And religious leaders are in a category by themselves, since the whole system is unapologetically based on faith to begin with.  What an easy group of people to lead when you can answer every question with some form of "its god's will" or "have faith".

 

I always find it interesting how good people are when dealing directly with them.  None of my neighbors would ever think to hold me up at gun point and take what belongs to me. Yet they feel not even the slightest pangs of guilt doing the equivalent via the ballot box. Funny how people justify things, especially when they can delegate the dirtywork and not have to think about it.

 

--Eric