Wells Fargo May Need $50 Billion? Wow… That Was Even Faster Than I Thought.
Well, it seems like just yesterday when Wells Fargo Bank was announcing its shockingly high profits for Q1 of 2009… and I was writing an article saying that based on the Wells Fargo press release, it was time to go short on Wells. It seems like yesterday… but it wasn’t… it’s amazing how we lose track of time as we get older… it was actually THE DAY BEFORE YESTERDAY! Time really does fly, doesn’t it?
Yes, here we are just two days since I showed that Wells Fargo’s press release had all the signs of a marketing department gone awry with some financial data, and Keefe, Bruyette & Woods (KBW) the largest investment bank specializing exclusively in the financial services sector, has downgraded Wells Fargo from “market perform” to “under perform,” saying that:
“We expect earnings and capital to be under pressure due to continued economic weakness.”
Pressure from continued economic weakness? Why, whatever could they mean by that? I hate gloom and doomers, don’t you? Why can’t they just be happy for Wells Fargo? These are the kind of people that don’t want our economy to recover. Damn socialists.
Here’s how the story went, which was reported by Bloomberg earlier today:
April 13 (Bloomberg) — Wells Fargo & Co., the second- biggest U.S. home lender, may need $50 billion to pay back the federal government and cover loan losses as the economic slump deepens, according to KBW Inc.’s Frederick Cannon.
KBW expects $120 billion of “stress” losses at Wells Fargo, assuming the recession continues through the first quarter of 2010 and unemployment reaches 12 percent, Cannon wrote today in a report. The San Francisco-based bank may need to raise $25 billion on top of the $25 billion it owes the U.S. Treasury for the industry bailout plan, he wrote.
So, who the heck are these guys at KBW? Do they even know what they’re talking about? They’re probably just a bunch of newbies that couldn’t tell a bank from a brokerage. Thank heavens for Google, huh? I’ll pull their covers and embarrass the guys at KBW for the unqualified fools that they obviously are:
Founded in 1962, KBW is recognized as a leading authority on financial services companies. KBW’s focus includes banking companies, insurance companies, broker/dealers, mortgage banks, asset management companies, and specialty finance firms. Our firm has established industry-leading positions in the areas of research, corporate finance, mergers and acquisitions, and sales and trading for financial services companies.
Oh yeah… well, so what? They probably don’t know everything. They probably don’t know where the TARP money went, what about that? Betcha’ they don’t know that.
You may not remember the details of what Wells released, after all, it’s Monday and so much time has passed since last Friday, so here’s how Bloomberg phrased it:
First-quarter net income rose 50 percent to about $3 billion, Wells Fargo said last week in announcing preliminary results that topped the most optimistic Wall Street estimates and sparked a 32 percent jump in the stock. The bank attributed the profit to a surge in mortgage originations and revenue from Wachovia Corp., acquired in December. Full results are scheduled for April 22nd.
The guys at KBW couldn’t even let Wells Fargo have their 15 minutes of fame. They had to rain on their parade on Monday? They’re just a bunch of Nervous Nellies, that’s what they are…
“Details were scarce and we believe that much of the positive news in the preliminary results had to do with merger accounting, revised accounting standards and mortgage default moratoriums, rather than underlying trends,” wrote Cannon.
Is that all? A little scarcity in the details department? I hate detail people, don’t you? Details, details, details. Who needs them? And what’s wrong with a little merger accounting? That doesn’t sound so bad. And the revised accounting standards? Come on, since when is being revised a bad thing? Isn’t it better to be revised than un-revised?
And I, for one, don’t see anything wrong with mortgage default moritoriums, whatever they are. Geeze, Cannon… can’t you give Wells Fargo a break? They’re the good bank… the well-managed bank. Can’t you go after one of the bad banks?
Bloomberg went on…
Wells Fargo raised its provision for loan losses by $4.6 billion in the quarter, below Cannon’s estimate of $5.4 billion. FBR Capital Markets analyst Paul Miller wrote after the announcement last week that he expected a $6.25 billion increase.
So… look how close they were on that one. They were less than $2 billion off. You can’t fault a bank for being less than $2 billion off on their provision for losses in this day and age, right? Look, if we as a society are going to start jumping all over banks just because they under-reserve by a measly $2 billion… well, I just don’t think I want to live in a country like that… sniff, sniff. Two billion’s a rounding error. Lay off. It’s not easy running a bank. Maybe they’re just not that good with numbers. Not everyone’s a math whiz, you know.
But, Bloomberg wasn’t satisfied… they had to go and bring up the charge-offs…
Net charge-offs were $3.3 billion in the quarter, compared with $2.8 billion in the previous period at Wells Fargo and $3.3 billion at Wachovia. The current numbers are artificially low because consumers received tax refunds and a there was a moratorium on some mortgage defaults, wrote Cannon, who predicts a “re-acceleration” of charge-offs in the second quarter.
Personally, I think bringing up the whole artificially low charge offs thing was way inappropriate. Who raised this Cannon guy anyway? Didn’t his mother ever teach him… if you don’t have anything nice to say, don’t say anything, right? Sheesh… some people. How rude.
Treasury Secretary Timothy Geithner is still conducting the stress tests, and even though he did say that he “expects that some lenders will require “large” amounts of capital,” that’s nothing to worry about because Tim’s been printing up trillions in fresh capital all month, so there’ll be plenty on hand if the banks need it. See, everything’s going to be all right after all. I knew Larry Kudlow was right…
Of course, once the sharks smell blood on the water, they all want to get in on the game, so Credit Suisse analyst Moshe Orenbuch in New York, just couldn’t resist initiating Wells’ shares with a “neutral” rating today. (What a puss, don’t you think? Neutral? Wimp. And don’t even get me started on a guy named Moshe Orenbuch… come on… I’ve never seen the guy before, but you just know this guy makes Woody Allen look like Pat Boone, if you know what I mean?)
“Given rising unemployment, continued home price declines and general macroeconomic headwinds, Wells Fargo’s consumer and commercial portfolios remain at risk for meaningfully higher credit losses over 2009 and 2010,” Orenbuch wrote.
This is the kind of guy who looks at a glass that’s half full and starts weeping over who stole half his water. When he’s optimistic, he invests in money markets. And general macroeconomic headwinds? So, now the weather has something to do with how banks do? I don’t remember Katrina having such a big impact on the banking system, do you? This guys full of hot air, in my humble opinion.
I’m not paying one bit of attention to this anti-American, negative thinking, bear market B.S. I’m going back to watching CNBC, where there’s a rally around every corner, and they’ve got guys you can trust, like Jim Cramer. I just love it when he makes the duck come down from the ceiling. He’s a real hoot!
And obviously, I’m not the only one who feels that way…
Today, Wells Fargo rose 6 cents to $19.67 at 4:11 p.m. on the New York Stock Exchange.
Woo-hoo! See, we’re almost out of the woods! I knew I could count on America. I’m going to Disneyland!