Wells Fargo (WFC)

(Market Call Minute.) There is an interesting revival happening here. He is still doing a lot of homework on this. There is a lot of technology risk here.

This has had troubles with all of its “fake” accounts and now, more recently, it looks like they are having some problems with insurance contracts. Seasonality for US financials is not in the summer. Chart is showing lower tops happening, which is a negative bearish pattern. It could break down to about $45.

This company is doing all the right things of cutting back on areas that look like potential problems, such as auto loans and student loans. Thinks you will make a 10%-12% return over a 5-year time frame. Dividend yield of 2.8%. (Analysts’ price target is $60.)

In the whole of financials, if you want something that has got some balance sheet and spread income, he would go with the money centred bank, not a regional. There is more capital market exposure and an annuity revenue stream. However, he wouldn’t do it with this bank. Prefers J.P. Morgan (JPM-N).

If you look at this against other banks and do a peer group analysis, what worries him are the management issues and what they have done in the past year or so. It surprises him that this bank hasn’t suffered more than it has. He does not want his clients to be involved with this, and would encourage people to move away from this and go to Citigroup (C-N) or Bank of America (BAC-N).

This got hurt by its predatory sales practices. They are in the penalty box. The whole sector has been hit because interest rates have kind of retraced. Thinks the US banking sector is cheap. This one is generally the best of the whole asset class. It is only trading at 1.3X BV and 11X earnings. Its ROI is probably around 13%. A premier bank with great assets.

Sell or Hold? This has been an under performer. It has a massive franchise in the US, which is not going anywhere. He would be more inclined to look at something like this, that has underperformed, rather than buying something that has already performed well.

Owned this at the time of their fiasco, and sold his holdings. It was not a situation he wanted his clients to be a part of. The risk profile of that bank increased dramatically in comparison to its peers.

He likes US banking as a general rule and this is a great company. They beat the street a little. The bigger issue is that they were targeting between 52% and 58% efficiency ratio, and came in with 62% because of the legal issues they had to face. Trading at 1.4X Book with a 3% dividend yield and it has lots of capital. a credible franchise all through the US, and thinks they can grab market share over the next little while. Their client servicing problems will still get passed out over the next several quarters, and then you will be able to see the company really start to grow again. This is a company that is going to grow more organically than through acquisitions. He really likes the company. (See Top Picks.)

This is a long-term Buy. It is a 1^st rate bank. They are not the 1^st bank that has gotten into some difficulty. The time to buy good banks is when they stumble.

Just reported and beat estimates. A great company and well run. Trading at 1.6X Book with a small dividend yield of 2.7%. Trading at 13X earnings. Net interest income, the biggest thing in this company because it is primarily a retail bank, is about 2.87%, a couple of basis points lower than expected. However, expenses went up. Costs are impacting them because of the issues they face with their employees, sales tactics, etc. That will affect them over the next couple of quarters, and earnings will be slightly depressed. As a franchise, this company is pretty incredible. If you get a nice pullback, he would buy it.

(A Top Pick March 10/16. Up 13%.) This pulled back quite a bit when the scandal 1^st came out. Prior to that event, it was always regarded is a very well-run bank, and got a premium valuation in the group. Pays a very nice dividend yield versus some of its peers. Higher interest rates will be beneficial to all banks. Still trading at a reasonable multiple of about 13X forward earnings with a yield of just under 3%.

It has come under the gun with aggressive practices with cross selling by employees, exactly like TD-T. He would look somewhere else than this one. You have lots of options.

Bank of America (BAC-N) or Wells Fargo (WFC-N)? Both large, US banks, so are going to have more in common than in disparities. It is hard to see one going dramatically in one direction and one going in the other direction. They are both going to be interest rate and economically sensitive. If interest rates move higher, margins are going to improve and will benefit both companies. However, he has a slight preference for Bank of America because of valuation. When looking at BV, Bank of America is dramatically cheaper at about 1.2X. We still haven’t seen the end of the fallout from their scandals in terms of pushing products to people, who weren’t aware they were signing up for a product.

They have a huge reputation going back over 100 years. They got through 2008 in better shape than any of the other banks. Reputational risk could kill a company like this. The scandal has not done this. He would rather stay in this one than jump to another.