Dick Bove States "Wells Fargo Is Proving Itself To Be A Standout" Nine Hours Before He Downgrades To A Sell
Can someone please explain why Mr. Bove noted on CNBC that Wells Fargo is proving "itself to be a standout" in the banking industry (2:30 into the clip), that it "would help push the market higher," and that is it the big winner in today's earnings derby, a mere nine hours before he ends up downgrading the company to a SELL? Perhaps, the SEC can advise on that particular conundrum.
(7 votes)
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on Wed, 10/21/2009 - 17:18
#106196
Fundamentals changed ... Will wonders never cease?
on Wed, 10/21/2009 - 20:53
#106447
Dick Bove changed his mind because he got hit by Caruso & Cabrera after the interview.
http://img246.imageshack.us/img246/3238/michellecarusocabrera.jpg
on Wed, 10/21/2009 - 23:10
#106569
Erin Burnett's brain is perfect for the Today Show.
on Thu, 10/22/2009 - 01:11
#106608
Dick loves the smell of WFC in the morning...
on Wed, 10/21/2009 - 17:20
#106199
Funny how skittish the herd is.
All it takes is one guy to utter a downgrade and the entire Wildebeest Herd gets spooked and sells anything and everything en masse.
on Wed, 10/21/2009 - 17:37
#106224
Would you mind posting that wildebeest chart again?
on Wed, 10/21/2009 - 17:43
#106237
RF afta hours
on Wed, 10/21/2009 - 19:40
#106329
I think this is the same guy I ran in to back in the day when he was at Honest John's Used Cars.
http://www.ridelust.com/wp-content/uploads/used_cardealer_photo.jpg
FREE SERGEY
ARREST LLOYD
on Wed, 10/21/2009 - 17:24
#106201
Hubris + greed + kevlar.
on Wed, 10/21/2009 - 17:25
#106205
to be fair he had a full 60 seconds to analyze WFC report before the CNBC live shot in the morning
of course that is more time than most "investors" spend nowadays "analyzing" a "headline" before deciding its time to get HAL9000 buying or selling a stock.
He obviously went back to his office and said HOLY SCHMOLEY - so this is what happens when I actually have time to look at a report before talking about it on TeeVee.
Its just plain stupid for CNBC to have anyone talk about an earnings report with out at least... oh ... 15 minutes to review it?
on Wed, 10/21/2009 - 17:57
#106260
You make that statement like he had no prior knowledge of WFC's business and no indication of how their business was doing. He's a fucking shyster like the rest of them. Anyone who bought WFC this morning after his appearance and then took a loss by the end of the day should sue him personally.
on Wed, 10/21/2009 - 18:52
#106333
No kidding. To be fair he's f'g bank analyst. It's his f'g job to know the current status and future outlook of every bank he covers. He's Santa Shyster!
on Thu, 10/22/2009 - 00:57
#106601
Well here's a novel idea. Why don't you tell them you haven't had enough time to review/digest the information?
on Wed, 10/21/2009 - 17:27
#106211
Thanks for reminding the comedy in all of this.
on Wed, 10/21/2009 - 17:34
#106218
"the SEC can advise on that particular conundrum."
Who are these "SEC" people and why would they care? Are they the same people that run the SEC football conference? :)
on Wed, 10/21/2009 - 17:41
#106231
And from what I can tell they do as fine a job with the football conference as they do with their oversight of the US markets.
Double the fun from one little ole government agency. Now that's change I can believe in.
on Wed, 10/21/2009 - 19:40
#106383
Hey now, outside potable water the SEC (football) is the best thing to happen to mankind. Better recognize.
on Wed, 10/21/2009 - 19:42
#106386
Sorry, forgot to turn the sarcasm light on.
on Wed, 10/21/2009 - 21:38
#106508
"Who are these "SEC" people...."
They are in fact........ghosts
The Ghosts of The SEC
Boooooooooooooooo scaaaaaaaaaaaaaaaary!!!
on Wed, 10/21/2009 - 17:34
#106220
WTF - I looked at google news to say what the media reason du jour for the late afternoon drop of whole Dow and they were saying people were freaked by Bove's "sell" on WFC.
His research makes sense and his attitude is probably the same as many visitors to ZH...
but to now see he was saying the exact opposite this morning on CNBC...how freaking brazen are these guys.
I suppose in a the few hourse after his appearance he had the time to do the deep research on WFC tendency to hedge mortgages and the big swings that results and SUDDENLY realize the basic core business was not doing so well...hell no, he knew they were not doing well and already knew their tendency to hedge and hence knew hedges would mask poor earnings this quarter...he did not find new information in WFC earnings report, rather he said in his analysis that they never say boo about the hedging which is such a big part of the earnings or losses and thus is basically saying WFC no longer is like investing in a bank company but rather like throwing your money at a volatile hedges....he knew this am....lock them all up, now, please.
on Wed, 10/21/2009 - 17:35
#106221
Classic
on Wed, 10/21/2009 - 17:38
#106227
Bove is a crook. He told Bartiromo last year "Citigroup would not cut its dividend". Then Pandit comes on air and implies the dividend was a done deal because "the board had voted on it". Natch, they cut the divident by 50% not long after.
Thieves, crooks, liers. Both these T#rds have their fair share of these Wall Street character traits.
on Wed, 10/21/2009 - 17:51
#106249
Hour 1 & 2: prep for CNBC
Hour 3 &4: actually take the time to read the report
Hour 4.5: call an emergency meeting with trading desk and share findings
Hour 4.5 to 5: call temp service to bring in telemarketing staff
Hour 5 to 6: get on the phone with all institutional clients to share opinion and sell stock and roll proceeds to NOV PUTS (told clients earlier in the year this was a generational buying opportunity)
Hour 6 and 8: let the trading desks work their magic
Hour 9: let the cat out of the bag
Simple plan and feel free to forward to Mary Shapiro
on Wed, 10/21/2009 - 17:51
#106250
B.O.H.I.C.A.
Bend Over Here It Comes Again
on Wed, 10/21/2009 - 17:56
#106257
Please, this time, be a sport and use some lubrication for crying out loud.
on Thu, 10/22/2009 - 00:18
#106590
I was referring to the thoughtful and professional actions from this stupid DICK (Bove) in the video clip. Were you recommending that I offer lubrication for the sake of The Princess (avatar), or were you asking that lubrication be used by the DICK (Bove)?
(On second thought, I think that I missed the sarcasm light, too.)
on Thu, 10/22/2009 - 03:48
#106628
I was on board with your "dick" angle but I felt that your comment applied to the fact that lubrication is needed by EVERYONE.
I don't care if you're making money in this market or not these days, if you're alive, you're being told to bend over.
I do find that the intelligence of ZH is amazing and so often there are more than two angles of view on any comment. Is there such a thing as a quadruple entendre?
Come on by, we'll leave the (sarcasm) light on.
on Thu, 10/22/2009 - 10:55
#106867
I'm totally on board with your take on the intelligence of ZH, and I especially appreciate your perspectives. I find them to be very outside the box and totally objective.
I also agree that pretty much everyone needs to be lubricated in order to accept anything that they don't want to hear. It's unfortunate, but it's reality.
And definitely leave the (sarcasm) light on, but please, no more discussion about being on board with my "dick" angle, please...
on Thu, 10/22/2009 - 11:11
#106888
May your angle dangle.
Sometime around May of 2007 I began the practice of carrying my own personal tube of K-Y jelly (red pepper variant in order to give something back) for those increasing frequent times when I'm accosted in my place of work, worship or leisure and the fucker didn't think ahead to bring the lube.
Seeing how it's my sphincter that's being stretched, one can never been prepared enough. Since we are often an unwilling (and thus usually unprepared) fuckee, I also carry an extra tube in the car and purchase it by the case.
But that's just me.
on Wed, 10/21/2009 - 19:42
#106385
If I hadn't made me, I would've been made somehow
If I hadn't assembled myself, I'd have fallen apart by now
If I hadn't made me, I'd be more inclined to bow
Powers that be, would have swallowed me up
But that's more than I can allow
Bow yeah, bow yeah
If you let them make you, they'll make you paper mache
At a distance you're strong, until the wind comes
Then you crumble and blow away
If you let them fuck you, there will be no fore-play
Rest assured, they'll screw you complete
Til your ass is blue and gray
on Wed, 10/21/2009 - 17:57
#106259
Bad things:
1. He made a recommendation on 5 seconds of thoughts in his head and changed his mind after a few hours of looking at charts (fyi: that's bullshit).
2. He was holding and wanted to dump later today after juicing another 1-2% return.
So, he's impetuous and stupid or a crook...He's boned.
on Wed, 10/21/2009 - 18:00
#106266
1. He had plenty of time to opine on WFC, days, weeks, months, years.
2. Maybe he went short in the morning.
Yup, boned is the right word.
on Wed, 10/21/2009 - 18:15
#106286
#2 was my play, lol.
on Wed, 10/21/2009 - 18:39
#106315
aka: Fool or knave.
on Wed, 10/21/2009 - 18:02
#106269
Pick-a-pay loans book value, $57B, LTV value range 81% to 155% (average 105%) carrying value of the mortgages $37B + NOT GOOD. $6.5B in CRE losses building. I wouldn't buy this piece of crap with your money that you borrowed from your worst enemy.
on Wed, 10/21/2009 - 18:10
#106276
Aside from the entertainment value, does anyone really listen to what this buffoon has to say? I don't think so.
on Wed, 10/21/2009 - 21:09
#106474
Only because Quick was interviewing him.
on Wed, 10/21/2009 - 21:15
#106481
I forgot
http://www.dealbreaker.com/images/entries/beckyquickinwhite.jpg
on Wed, 10/21/2009 - 18:20
#106293
Outstanding news from Santa's Evil Twin. If you are a big enough dipsh*t to believe anything this clown has to say you deserve to lose money. It was self-evident WFC's eating Wachovia was going to cause the same diarrhea BAC got from Merrill. I won't be suprised if that entire transaction gets the Rakoff treatment at some point. All of a sudden this Santa Claus lookin' ass-clown comes to this realization?!?!
on Wed, 10/21/2009 - 18:32
#106308
Notice the disclosure statement at 2:12 of the clip..... no ownership disclosed, no family, client or firm ownership.
So again it begs the question....Why downgrade what you don't own or what your client's were never advised to buy to begin with?
on Wed, 10/21/2009 - 18:33
#106309
Bove always alternates between notes about how undervalued the banks are one day and notes about their challenges the next. This is just more rapid-cycling than usual. How this man can move the market, let alone hold a job, is a wonder.
on Wed, 10/21/2009 - 18:44
#106325
When you're a puppet, all you need to do is dance.
on Wed, 10/21/2009 - 18:37
#106313
TD...
The WSJ is picking the reversal of opinion theme up as well in their late day update...
http://online.wsj.com/article/BT-CO-20091021-718171.html
on Wed, 10/21/2009 - 18:40
#106319
HELLO, what changed between this morning and afternoon? the PAY CZAR took it to the street and slashed pay at tarp firms. this is just the beginning. and btw, what do you think is going to happen at aig when the entire derivatives team walks out the door b/c their pay just got slashed to 200k!!!!!
on Wed, 10/21/2009 - 18:42
#106323
He was likely told by his paymasters to change it to a sell. Another bear trap is on its way
on Wed, 10/21/2009 - 18:46
#106328
there is nothing wrong with what this guy did today. absolutely nothing. he covers himself at the end of the interview that he hasn't seen all the numbers yet and one in particular the rate of delinquencies in their loan portfolio at wells fargo. you gotta give him the benefit of the doubt that he went back to his office, looked at the numbers, and changed his mind.
on Wed, 10/21/2009 - 18:53
#106334
Does anyone really believe that the Gang is to let the market fall before it surpasses the 50% Fib., or at the very least closes at or above 1,100 for at least one day?
on Wed, 10/21/2009 - 19:52
#106395
In a world of MAX PAIN for traders, the market falling just short of the 50% fib makes perfect sense. Kinda like the DXY breaking 75 today (what the momos n techies were waiting for) and then reversing most egregiously. Happy hunting.
on Wed, 10/21/2009 - 19:59
#106401
You may of course be right. But I doubt you are. It is precisely the attractiveness of the reversal trade what makes this (and all the previous "corrections" in this "market" rally) bear trap so good.
on Wed, 10/21/2009 - 20:13
#106415
Implied correlation says no. It shot up with VIX and then got itself together at the end of the day.
Doesn't look like a panic situation/sandpile collapse/meta market engineered collapse IMHO.
on Wed, 10/21/2009 - 18:55
#106340
Flash: Bove found dead in Bennies pool and ale bar. bulls eye'd up the butt with a pool stick, GS limo screached away say drunken witnesses.
on Wed, 10/21/2009 - 19:01
#106347
Bovine
on Wed, 10/21/2009 - 19:04
#106350
Great promo effort. He pumped the stocks this morning on an otherwise dismal reporting day only to "clarify" and downgrade after he and his buddies cashed in.
Folks, it's not an easy job nowadays to pump and dump stocks.
Tomorrow's unemployment numbers could also have to do with market performance in last half hour. Dick Dove is just the fall guy du jour.
Galleon liquidation is not small potatoes either.
$81 oil on 1.4 mln barrel inventory buildup. LOL.
This promo has been overdone and the dumping will start soon.
Get out now or forever loose your shirt.
on Wed, 10/21/2009 - 19:08
#106356
agree that Raj's shop had something to do with this, having said that I am sure that DB is savoring his elevation to the status of Prechter
on Wed, 10/21/2009 - 19:05
#106353
at the risk of ruining whatever reputation Anonymous might have, Dr. Bove did qualify his view of Wells pending his review of the data on delinquencies - it seems that Becky and her friends had summoned Dickey on 'short' notice (i.e. a fill-in for no show MW)
on Wed, 10/21/2009 - 21:29
#106499
nothing like passing out opinions without
suitable information....makes me want to run
for congress or for special guest on the gong
show...
on Wed, 10/21/2009 - 19:10
#106359
(i.e. a fill-in for no show MW)
maybe MW had a last minute breakfast invite from sheila bair?
on Wed, 10/21/2009 - 19:20
#106365
no, she was @ ars book party last night.
as was becky.
perhpas mw was a tad hungover.......
on Wed, 10/21/2009 - 19:30
#106374
Isn't Bovine's performance today kinda obvious? He is desperately attempting to get the attention of Goldman Sucks in hope of securing a high-paying goobermint job with them.
on Wed, 10/21/2009 - 19:36
#106379
I think it's the cart leading the horse. Proclamations from shills like Bove are used as a reason or an excuse for market behavior that doesn't make sense unless it's recognized as pure manipulation.
on Wed, 10/21/2009 - 19:42
#106384
One would hope that Bove and other bank analysts like him would understand the state of the banks they cover and have the capacity to review a balance sheet. Sadly, this appears to be a classic "expert" pump and dump operation. Unfortunately there is no cop on the beat since all the cops become robbers while the robbers become cops and the so called markets have become one giant GSE free for all.
on Thu, 10/22/2009 - 06:31
#106641
PLEASE DON'T TELL OBAMA WHAT COMES AFTER A TRILLION.... bumper sticker in NYC.
on Thu, 10/22/2009 - 08:36
#106681
Sign of the times fo sho.
on Wed, 10/21/2009 - 19:43
#106387
Bove is a blade of grass. He flip-flopped on Lehman and the strength of the financial industry when things got rocky. He doesn't seem very reliable.
on Wed, 10/21/2009 - 19:53
#106398
could the answer to the question be that dick bove is a lying sack of shit and possessed of incompetence?
on Wed, 10/21/2009 - 20:00
#106402
Differentiating between relative operating performance compared to other banks which may be comparatively strong, but still does not preclude it from being a bad investment due to a too high stock price.
on Wed, 10/21/2009 - 20:06
#106408
Check TIAA-CREF real estate fund and compare its performance with WFC's CRE writedown and you will see the whole picture http://www.tiaa-cref.org/performance/retirement/profiles/1009.html
on Wed, 10/21/2009 - 20:08
#106410
Wow. He seems like such a kindly old man. What a wonderful way to mask the fact that he's a horrible, incompetent, lying old cunt.
on Wed, 10/21/2009 - 20:24
#106430
Thinking that an analyst's recommendation has a half life of more than 15 minutes is so 2007.
on Wed, 10/21/2009 - 20:26
#106432
"Because it's wreckable, alright? I took another look at it, I changed my mind."
on Wed, 10/21/2009 - 20:28
#106433
Mr. Bove knows that one must do whatever it takes to survive in this day and age. Can we really blame him? He is just taking what he can now and then asking questions later.
on Wed, 10/21/2009 - 20:30
#106437
Even Canada sold off -96. Fuck this bearded asshole Bove.
on Wed, 10/21/2009 - 20:32
#106440
Here is a business plan for an entrpeunere: a collection of all Dick Bove's great banks and IBs analysis from 2008. And detailing dates before every implosions of one of them.Two DVDs one for him and one for Jim Cramer. I guarantee that who ever manages to do that and market them as the greatest comedies of the 21 centuries will be very rich.
on Wed, 10/21/2009 - 20:40
#106450
Yeah, I'm on the West Coast, so when Bove had all those nice things to say about WFC this morning, I was half asleep. But not asleep enough to not notice the futures started going up when he said that. When their earnings were 1st announced, the stock went up a little on the news, after about 3 or 4 minutes of shorts covering just because they thought they were being forced to, it started to sell off. That's when he made the comments you're referring to. The stock made a slow climb in pre and then took off at the bell.
Hours later, when he said, "Sell" I thought maybe I had dreamed the whole thing. That was one of the strangest occurrences I can remember. And the funny thing is no one on CNBC mentioned the contradiction at all.
on Wed, 10/21/2009 - 20:40
#106451
Holy Cow! More udder nonsense from Bovine. Wonder if he milked the market today before his well ran dry.
on Wed, 10/21/2009 - 20:41
#106454
Bove is the clown who said Citigroup was "an all-time buying opportunity" at $18 a share LOL
on Wed, 10/21/2009 - 20:56
#106465
He also said Lehman was worth at least $20 a share a week before they fulded.
on Wed, 10/21/2009 - 21:00
#106467
FAS 160
SPE, VIE?? just a whiled guess....
on Wed, 10/21/2009 - 21:07
#106473
What I don't get is, the MSM goes on and on trying to find a reason for a 17 point turnaround in the S&P, but for the rest of my life I will never forget the day back in the spring when I went to take a piss about 20 minutes before the close, came back 5 minutes later, and the S&P had cranked up 20 points from when I left, and this was when it was in the 700/800s.
Not a fucking soul in the MSM tried to explain that move.
on Thu, 10/22/2009 - 00:45
#106595
g_F_i- I was on the treadmill watching CNBC (only lifeline) at the gym into the close....got home and holy shit. (((Poof)))-ba-bye 10% of ETFC profits. So much for having my finger on the trigger. I think I read someone said earlier this smells like fear. +10.
on Wed, 10/21/2009 - 21:15
#106482
Bullshit website quotes bullshit analyst to explain bullshit. Since all this bullshit is respected by the authorities it must be true.
According to this article, Bove's credentials are as follows:
1) He is "noted".
http://www.marketwatch.com/story/us-stocks-tumble-into-red-after-bove-cu...
on Wed, 10/21/2009 - 21:20
#106485
Edward Bernays, Propaganda (New York: H. Liveright, 1928), pp.62-3.
on Wed, 10/21/2009 - 21:25
#106493
I read the book. I thought it was pretty dry, but still very interesting, and useful.
on Wed, 10/21/2009 - 21:21
#106487
Don't count on CNBC to question this blatant manipulation. This @assclown should never be allowed on TV again unless it is CourtTV.
on Wed, 10/21/2009 - 21:24
#106490
Ghost, I hear you. The mkt moves much faster up then it ever moves down now. I have been eviscerated on no news, fake moves and currency fuk you very much's. C'mon, today moved up 14 pts on no news!!!!!!!!!!! We have a 2-4% move up every week on no news. I have never seen that....ever..... 20 years trading.....nothing...
on Wed, 10/21/2009 - 21:24
#106491
Ghost, I hear you. The mkt moves much faster up then it ever moves down now. I have been eviscerated on no news, fake moves and currency fuk you very much's. C'mon, today moved up 14 pts on no news!!!!!!!!!!! We have a 2-4% move up every week on no news. I have never seen that....ever..... 20 years trading.....nothing...
on Wed, 10/21/2009 - 21:26
#106494
glad he did it. better late than never. the tape obviously was looking for an excuse. GS/BAC/C/COF and the shite names were all progressively getting weaker all day. There was ample time to get a short on. I was already shot at the time. Really thrilled it happened. been JAMMED enough times in the final hour to deserve some payback. But, yes, the reaction was severe in relative terms. Some charts truly got wrecked as a result. I mean cmon, how in the world can anyone expect this one way action to continue without some profit-taking? What's very evil about this market though is just how many suppossedly solid earnigns reports have been ruthlessly faded. Here are jsut a few to note: INTC, YHOO, GS, TXN, FCX, JPM, UTX, CAT...etc. Sure they each got pumped first, but boy are they getting DUMPED. LOVING IT.
on Wed, 10/21/2009 - 21:35
#106505
I think zh ought to examine some of those product in details. These are new products marketed by IBs,some of them guaranteeing capital for investments in equities. Isn't that kinda like Madoff's guaranteed return?how can one have a guranteed return in equities?anybody who can discover that formula,will be like someone who can turn sand into gold........
on Wed, 10/21/2009 - 21:36
#106506
Sorry. The link for those guaranteed investment in equities
http://uk.reuters.com/article/idUKTRE59K2QC20091021
on Wed, 10/21/2009 - 21:39
#106509
You are not listening:
P. 14 new accounting rules inmplications up to 87 billion:
https://www.wellsfargo.com/downloads/pdf/invest_relations/2Q0910Q.pdf
on Wed, 10/21/2009 - 21:39
#106511
EPS of 56 cents vs low analyst estimates. I don't see how that could be misconstrued as bad. Hedging was present in Q2...and guess what? It's present in Q3. Dick Bove can go die in a fire.
on Wed, 10/21/2009 - 21:48
#106519
Can't a fellow change his mind? Perhaps he sobered up.
on Wed, 10/21/2009 - 22:01
#106524
If ppl got f*cked by listening to this idiot or any other wall street snake oil salesman, then they got exactly what they deserved. I have no sympathy for anyone who gets screwed in this market---its so clear the game is rigged and manipuated that its just tough tittie if you get burned.
on Wed, 10/21/2009 - 22:03
#106525
Because the dollar is continuing to crash and the policymakers are getting scared. It's time to take some air out of the market and try to pump some life back into the old greenback. Unfortunately, although the market sold off as planned, the dollar did not rally but continued its slide. OOPS!
on Wed, 10/21/2009 - 22:07
#106529
Dick Bove needs to go on "Squawk" tomorrow morning and explain himself.
on Thu, 10/22/2009 - 00:16
#106591
and after he finishes... he needs to bury his face in michelle cabruso cabrera's chest and ask for forgiveness.
on Wed, 10/21/2009 - 22:24
#106540
Sorry... but Bove didn't do ANYTHING wrong! Most of you seem to be confusing his sentiments about the company (in the morning) with his sentiments about the stock (in the afternoon). If you take the time to listen carefully to what he said, there was nothing contrary to what he followed up with later.
Secondly, he did not move the market - in my opinion - unless you think he moved the dollar. Keep your brains in your pants the next time you want to daytrade earnings. Almost every positive release has been faded by the close!
Now let's get back to more intelligent use of this space! Sheeesh!
on Wed, 10/21/2009 - 22:43
#106555
Bove keeps two sets of books for his track record. Six months from now he will cite today as his prescient call on WFC.
repost.
on Wed, 10/21/2009 - 22:44
#106556
I didn't know how to pronounce this Dick's last name, I had it as one syllable...
You know, like that terminally rerun Brit Comedy on PBS's, where the last
name is spelled Bucket, but is pronounced "bouquet". Wait, that smell ref is ANOTHER similarity!
on Wed, 10/21/2009 - 23:01
#106566
an 'elitist' shot across the Obama bow (make you/break you) and Bove the perfect dupe! Meanwhile the SEC busy with ‘fiddle’ app for their new IPOD…………….
on Wed, 10/21/2009 - 23:01
#106567
"Wells’ profit of $3.2 billion, or 56 cents a share, beat expectations, but Bove noted that the bank earned a stunning $3.6 billion from a hedging strategy related to its mortgage-servicing rights -- a gain that may be difficult or impossible to repeat."
ROFL
is it me, or does it sound like someone shorted their own books, wonder who was the other side of the hedge?
on Wed, 10/21/2009 - 23:17
#106574
I call mulligan, what this country needs is a total do over. The car is totalled yo. There's no fixing it.
on Wed, 10/21/2009 - 23:20
#106576
All you need to know about Dick Bove is in his initials.
on Thu, 10/22/2009 - 01:47
#106615
Just call him Dick. Dick X. Any mention of Bove will prompt my treasurer to call him a "fucking moron," so that'll do too.
Well, yeah, you have to short parts of your book to hedge it. They're MSR economic hedges. I was wondering about what constitutes those too, so I checked WFC's 2Q 10-Q. They hedge primarily with swaps, swaptions, forwards, ED and Treasury futures, etc. At the most complex I think they use some equity-linked CDs. Regardless, they're probably marked to market. If you look at page 42 of their news release you can see how the hedges match up against fair value changes in MSRs (pretty well):
https://www.wellsfargo.com/pdf/press/3q09pr.pdf
Dunno, seems to me like worst-case scenario Wells isn't pessimistic enough on the MSR valuation side, but that has nothing to do with the hedges. And net, over the last four quarters the change in FV for MSRs has been offset by the hedges, so, you know, the hedges are doing what they're supposed to.
on Thu, 10/22/2009 - 09:10
#106716
The other side of the trade was anyone shorting the long end of the yield curve. Wells essentially bet the ranch on long dated Treasuries and it worked because the Fed was buying the long end. Now the question is what will happen to the long end of the curve with the end of Quantitative Easing. Is it the right time to short the long end of the curve?
on Thu, 10/22/2009 - 09:36
#106752
I would think that hedging MSRs, which has always been an inexact science, would be harder than ever. Historically if rates dropped there would have been a flood of refinancings that would have hurt the value of existing MSRs by shortening the duration of existing mortgages. With a lot of mortgages at very high LTVs and tightened lending standards I'd think the value of MSRs would decline less now relative to a drop in mortgage rates than would have been the case a few years ago because fewer people can refinance. In addition, the number of home sales has gone down because of tightened lending standards, fewer relocations, etc. Those factors would also tend to make MSRs worth more as the duration of existing mortgages would be higher than normal.
Those factors would be offset to some degree by increased defaults and foreclosures which shorten mortgage durations and would make existing MSRs worth less.
Wells and some of the other banks may have gains from MSR hedging because mortgage rates declined and it had less negative effect on MSR rights than they anticipated, or in other words they turned out to be overhedged against a decline in rates so the decline worked in their favor. That is not what I'd call high quality earnings, something that could be counted on to recur and that you could put a high multiple of earnings against when valuing the bank.
In any event, if the change in fair value of MSRs has roughly been offset by hedges over time and one assumes that would continue to be the case (even if not for a few quarters while the banks catch up to changes in the relationship between interest rate changes and mortgage durations), it would make sense to take out the gain or loss on MSR hedging in a given quarter to get a better picture of a bank's core earnings.
on Thu, 10/22/2009 - 09:46
#106765
You're thinking like an analyst. Instead, consider that you've got a book of MSR's that will need to be foreclosed on if not refinanced. You know that you're going to refinance and you know that Quanitative Easing will allow you to make up for your losses by owning the long end. In essence, the Fed negated $3.5 billion in losses while alos pumping the housing market with cheaper mortgages thanks to Fed buying and bank buying. They also got to destroy speculators betting against the long end of the curve. It is a win-win-win situation. Lastly, while I agree with quality of earnings, most people today trade on headlines not underlying cash flow.
on Thu, 10/22/2009 - 05:22
#106634
fbvdsb
on Thu, 10/22/2009 - 09:08
#106713
Thanks ZeroHedge for pointing this out to the SEC. This guy is a mouth piece for some hedge fund clients. He deserves to be thrown in jail, especially after his last transgression at Ladenburg.