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Wells Fargo Follow-On Offering In 3...2...1....
And, as usual, compliments of Government Sachs
Not all dilution is created equal
We raise our coverage view on large banks to Attractive from Neutral, upgrade Wells Fargo to Buy and add Capital One to our Conviction Buy List as we believe the gap between sustainable earnings per share and current share prices is too wide. Against that we stay Cautious on regional banks given permanent earnings dilution and later cycle credit issues although we moderate our stance by upgrading Comerica to Neutral.
The market has failed to recognize the dramatic improvement in earning power at the large banks versus the regionals. Consider tangible assets per share have increased 29% for large banks vs. a 25% decline for regionals. Pre-provision earnings per asset has increased 7% vs. -14% for regionals.
We believe this difference in earnings power has not been fully reflected in share prices. We estimate that normalized earnings for large banks are 39% higher than in 2007 despite the 36% decline in share prices implying a significant fade in ROEs. Our normalized EPS estimates translate to 14% ROEs for large cap banks supporting a normalized 3X tangible book valuation.
Stock implications
Credit is still a concern but our analysis makes us more positive on select stocks and more confident that big banks will further outperform regionals. In addition to our CL-Buys on JPM and BAC we:
1) Upgrade Wells Fargo to Buy: The bank has increased tangible assets per share 70% this cycle given the low price paid for Wachovia while pre-provision per asset has also increased 9%. Put together, this implies the stock is trading at just 6X normalized EPS. Capital has held us back but we expect TCE to increase 70bp in 3Q given earnings and leverage to tighter credit spreads.
2) Add Capital One (Buy) to CL: Tangible assets per share have not changed and consumer credit is moderating. We think 3Q revenues will be better than expected leading investors to revise up normalized EPS to over $5, leaving the stock at 6X normalized vs. 9X for regionals.
3) Upgrade Comerica to Neutral: CMA has late cycle exposures but the business model hasn’t changed and tangible assets per share are up since 2Q07. We update normalized EPS and price targets for these three stocks.
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april 1 already?
Pump and dump...
JubileeProsperity.com
Either that or we are about to experience Oct. 31 Samhain. If only the regional banks could disguise themselves as /sarc 'someone who matters' /sarc
Sweet! I CAPTCHA for the site that is easy enough for me to solve!
Hey Warren Buffett, nice of your 5 billion debtor to upgrade your crown jewel.
unfkingbelieveable...this nation of liars, cheats, compromises and greed...I know what a pro-lifer feels like now...ie: this isn't who swore allgence (sic)too.
Yeah, everything changed...NOT!
No wonder why their conviction sell list stocks outperform the ones on their conviction buy
saw this on BB-TV today, hilarious!
conviction = condemnation = doom
Ramsden is the new Whitney, and Whitney is the new Bove.
like i said in the other thread, the GS conviction buy list is turning out to be an outstanding contrarian indicator.
What i thought. I like the "consumer credit is moderating" bit.
Translation of GS analyst: our trading desk has bank shares they need to unload at slightly higher price.
How many CL failures have these bozo's had? That should be a disclosure item.
If the FDIC is out of money after all these smaller banks are going under and they are asking big banks to help out with funding the FDIC, doesnt this in essence means that the FDIC will eventually give the deposits of those failed banks over to the big banks in order to have access to sufficient capital to replenish the FDIC treasury? Basically, its like WAMU all over again, and the big banks get capital and deposits on the cheap. Whats this about too big to fail? Like the real world, the rich gets richer at the expense of everyone else.
How many CL failures have these bozo's had? That should be a disclosure item.
Mr. Blankfein:
Wow, HuffPo continues to hammer away at Goldman Sachs...you guys caught the front page headline screamer on a Monday morning....ouch!
The entire house of the obama worshippers views Goldman Sachs as the personification of all that is evil in our current financial mess. They are almost near the tipping point....tick tock, tick tock.
until they put a blow torch to bernanke's head
along with the rockefellers and rothschilds they
are just whistling dixie...
"...the low price paid for Wachovia..." LOL
Wells got suckered in to buying Wachovia after that head fake from Paulson and Goldman. They still laughing.
Soros says the US banks are basically bankrupt. Sounds like a GS pump and dump.
so far, so good. the BKX had broken down through the 50 day and we got her back up there again. gotta keep the spx over the 50 as well.
Ditto WFC, XLF, RKH, JPM, BAC, etc.
Happened to walk by a set w/ CNBC and saw this headline:
"Oil Down On Concerns About Economy"
As the indices are all nicely green... That would be worth a screenshot. Hopefully with WFC on the ticker.
Today is nauseating for bears, screaming higher on nothing but upgrades... (unless GS got the drop on econ numbers, which there is no point in questioning anymore).
I agree...no merger mondays..oil down, asian mostly down yet we find a reason to pump stocks up based on upgrades after 50-100% moves in those respective stock prices already. Plus insider selling is rampant, though I am sure they are told to sell only when the market is up 1%. I never expected US to be more corrupt than China but its looking more like that everyday.
Have to love a market which rockets a company's shares 14% (BRCD) when they announce they are putting THEMSELVES up for sale. Isn't that usually a sign of desperation?
Plus, I wouldn't be shocked if the panicked marketing of the homebuyers' tax credit this weekend was to try to support the market today.
GS gives new meaning to the term " tangible assets ".
I suspect it means real assets + moderately puffed assets + really puffed assets = tangible assets.
seeking alpha sept 22nd 2009
Wells was one of the companies told to raise capital after the fake stress test results showed you can only fake something so much. They claim they can raise that capital by the end of Q3 by internally generated means - including, in Q2, $2.7 billion in deferred tax liabilities, the same accounting gimmick that bit Fannie Mae big time.
Do they think we are stupid? Yes - and they are pretty much right. Maybe it is Buffett - but remember he values businesses based on cash and cashflow and brand, and Wells is a great consumer bank, arguably the best in the country and has no problem with cash or cashflow. Maybe it is the bellicose statements by CEO Stumpf - maybe it is their legendary customer service - maybe it is fear - but no one is calling them out. Line up ten thousand more readers and maybe we can start the hue and cry.
What will we cry out?
You need more capital.
To write off more Level III assets, someday - maybe as much as $30 billion.
To support off balance sheet assets coming on - maybe as much as $15 billion.
For greater loan loss reserves - maybe as much as $12 billion.
For more option ARM losses - maybe as much as $5 billion.
To pay back Uncle Sam - no maybes, $25 billion.
Total: $87 billion.
My comments
Never seen a domestic bank outperforming its own economy as well as Wells Fargo
Could we see published the bulk of 90 days non paid interest on loans?
Could we see published the restructed loans amounts and tenor?
does anyone know wells' tier 1 capital ratio?
Goldman is touting the bank stocks today to try and offset the negative reports by Chris Whalen and IRA along with George Soros saying they're all bankrupt. Also the news on the large Spanish banks. Remember anything GS puts on the CL you are bound to lose money on with a high probability
I would add to that Barofsky's report.