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Wells Fargo - Almost There
So far 2008 has not been a lot of fun for the management and shareholders of Wells Fargo (WFC).Shares in the bank trade at the lowest levels in 5 years and are less than a dollar off of 52 week lows. The bank has been hit by its large exposure to residential real estate, particularly the difficult California markets. Analysts have steadily downgraded the stock pointing out that continued consumer weakness is going to make it difficult for debts to be repaid until the economy picks up. Wells is seeing rising delinquencies across the board in its consumer lending portfolio. Although home equity delinquencies are the most troubling, consumers are increasingly late with their auto loan and credit card payments as well.
Even bank bull Richard Bove got into the act, kicking Wells while it is down. Bove cut both his earnings estimates and price targets for the bank. He also cited consumer weakness as the reason for the downgrade. Analysts at JP Morgan included the bank on its list of bank with loan loss ratios that were far too low and would have to be increased in the near future. Although this could cause reduced earnings for them, Wells Fargo is in the comfortable position of having total and risk based capital ratios far above the current industry averages.
Read more about Wells Fargo...
It has been thought since the credit crisis began that Wells Fargo would an opportunistic buyer of other financial institutions. Its excess capital puts them in the comfortable position of being a buyer at fire sale prices. The bank has begun buying but is being extraordinarily careful, and in my opinion prudent in its purchases. So far they have announced just one bank purchase, FSB Bancorp of Fort Morgan Colorado. Wells Fargo is already the number one depository institution in Colorado and the move adds to their base of operations in the state. They also purchased Flatiron premium Finance company headquartered in Denver but active in several sates. Finally, they purchased Transcorp Associates, an inventory fianance and factoring firm. There will be a lot of smaller banks and finance companies available below asset value before the credit and real estate mess is over and Wells Fargo should be able to profitably expand as a result.
The stock is still not a screaming buy. The bank is expected to report more write downs and credit related problems in its second quarter earnings report. They are expected to announce earnings on July 16th and investors will be watching closely to see how management fared in the second reporting period of 2008. Should the stock continue to fall closer to or below $20 a share long term investors will almost have to buy the stock.
Insiders would seem to agree. CEO John Stumpf recently added to his position as did outgoing Chairmen Richard Kovacevich.
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