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Is Wells Operating Below The FDIC Statutory Minimum 3.0% Tier 1 Capital To Total Assets Ratio Courtesy Of A Few Accounting Gimmicks?
With Geoffrey Batt
Each quarter, following the release of assorted 10-K's and Q's, one of the most interesting pieces of detective work in the world of financials occurs when one, hopefully armed with a lot of free time, pores through the hundreds of pages of financial arcana and outright magic and cow manure, better known as Wells Fargo's financials (blessed by such grizzled and conflicted wizards as Warren Buffett). The investigative work is usually driven by the desire to uncover just where the trampling of accounting rules, and collusion between the management team, accountants, lawyers and regulators (FDIC and otherwise) occurs. In this specific case, the results demonstrate that adjusting for some rather egregious accounting "frivolities", Wells Fargo may well be under the 3.0% FDIC Tier 1 ratio minimum for "strong" bank holding companies. This would imply that the publicly reported Tier 1 ratio of 6.46% is more than double what the bank deserves, and a pure construct of some accountant's imagination rather than anything even remotely indicative of the truth.
Before we dig in, a friendly reminder from the incompetent regulators at the FDIC:
The Board has established a minimum ratio of Tier 1 capital to total assets of 3.0 percent for strong bank holding companies (rated composite "1" under the BOPEC rating system of bank holding companies), and for bank holding companies that have implemented the Board's risk-based capital measure for market risk as set forth in appendices A and E of this part. For all other bank holding companies, the minimum ratio of Tier 1 capital to total assets is 4.0 percent. Banking organizations with supervisory, financial, operational, or managerial weaknesses, as well as organizations that are anticipating or experiencing significant growth, are expected to maintain capital ratios well above the minimum levels. Moreover, higher capital ratios may be required for any bank holding company if warranted by its particular circumstances or risk profile. In all cases, bank holding companies should hold capital commensurate with the level and nature of the risks, including the volume and severity of problem loans, to which they are exposed.
One can make the argument that with recent revelations that Wells Fargo is allegedly overtly cooking its books, at least as pertains to the "value" and benefit of its MSR hedges, the bank's Tier 1 should have a materially higher threshold than 3.0%. But we'll let that slide for the time being.
Digging into Wells' 10-K, we uncover that according to the management team, the firm's Tier 1 common equity to total risk-weighted assets ratio is 6.46%.
Life would be grand if only this were true.
As we have exposed on many occasions in the past, one of the key fudgings that occurs in the financials' books is the major discrepancy between a bank's designated carrying amount of assets (loans) and their estimated fair value, which all financials are now required to disclose. As the chart below demonstrates, between 2008 and 2009 Wells Fargo, unlike its peers JPM and BofA, has seen this delta increase substantially, from $14.2 billion to $26.4 billion. In essence, the firm acknowledges that the fair value of its loans is $26.4 lower than where it marks them for bookkeeping purposes. Obviously, the implication is that this adjustment amount should also be used in determining the true Tier 1 equity value. So adjustment number 1 - Fair Value to Carrying Amount Delta of ($26.40 billion.
Next, looking at the first table above, we can see that Wells provides an adjustment for intangible assets of $37.7 billion in the Tier 1 equity waterfall analysis. This is odd, because looking at the firm's balance sheet, we can see that the intangibles on Wells books are slightly greater, at $41.9 billion, which should include the MSR value, whose fleeting basis has been discussed previously (and likely shouldn't have any value whatsoever due to crazy pill accounting), yet which for all Tier 1 calculation purposes should be excluded. To wit:
Mortgage-servicing rights are intangible assets that
consist of rights to receive fees from third parties in exchange
for doing things like collecting and forwarding monthly payments
from homeowners. Unlike other intangibles, such as goodwill or
trademarks, companies have the option under the accounting rules
of marking them at their fair market values on a quarterly
basis, and then running the changes in value through their
earnings. [We urge readers to go through the following post for an in depth analysis of MSRs and how WFC loves to fudge these]
So adjustment number 2: the $4.2 billion delta between the $37.7 billion presented in the Tier 1 calculation table above, and the $41.9 billion as demonstrated.
Lastly: deferred assets. Why Wells is taking a deferred tax asset benefit is beyond us. After all, the only time a company should have a reason to adjust for this number is when it believes it will make enough profit to take advantage of the "asset." Will that ever be the case with Wells Fargo? Hardly, especially if one were to assume that WFC would ever mark its portfolio to its true basis. According to WM Lab, Wells is not provisioning nearly enough for its delinquent loans. 28% of the bank's loan book is in 1-4 family first liens and has a 17.39% 30 day delinquency rate. JP Morgan has $42.2 billion in 30 day delinquencies and has a loan loss allowance of $31.5 billion, or a delinquency allowance ratio of 1.34. Wells, however, has $59.1 billion in 30 Day + delinq. and a loan loss allowance of just $22.8 billion, for a delinquency ratio of 2.59; this is quite scary. Aside from broader implications about the bank's viability, it should render any discussion moot about whether or not WFC's accountants have any right to take advantage of a deferred tax asset. And since we are far less conflicted and will not make any money from Wells from this report, this will bne our third adjustment: i.e. $5.3 billion.
Combining the three, we present a bridge between the Tier 1 equity as reported and Tier 1 equity as adjusted below.
By now it should be clear where we are headed. If one were to use the adjusted Tier 1 equity we have thus derived after three minor adjustments, and use it to calculate the firm's Tier 1 Ratio, which has a $1,013.6 billion of total risk-weighted assets in the denominator, we go from a perfectly acceptable 6.46% to a FDIC verboten 2.91%!
This is shown graphically below
Is Warren Buffett's favorite bank currently operating at below the statutory minimum capital requirement? We believe so, and if various GAAP-allowed book cooking techniques were to be stripped out, the bank would not only have a sub 3.0% Tier 1 ratio, but its leverage instead of being in the low double digits, would be probably north of 30x. In essence, Wells is using the same leverage as a deposit-based lending operation as Goldman and other investment banks used as hedge funds during the peak of the credit bubble.
You have been warned.
Link to Wells Fargo financial supplement for all your paperweight needs.
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the irony of being the most obvious short with the richest valuation...next up a discussion of buffets "free" float
Buy WFC, they'll push it to 35
Too bad my old Wachovia options have to get to about $125 before they have any value...
That and the entire XLF family would be a nice long dated short.
It's good to see ZH jump on the WFC "super aggressive accounting" bandwagon. I have been pointing out the issues with this company for two years now.
My notes from last quarter (http://boombustblog.com/201001241293/The-Wells-Fargo-4th-Quarter-Review-is-Available-and-Its-a-Doozy.html)
Non interest income increased 3.8% to $11.2 billion in 4Q09 from $10.8 billion in 3Q09 primarily owing to increase in mortgage banking income, net gains on debt securities and net gains on trading activities by $344 million, $244 million and $150 million, respectively. Mortgage banking income increased largely due to changes in the fair value of MSR (Mortgage Servicing Rights - a level 3 derivative with valuation derived by management opinion from non-market inputs). Thus, the increase in non interest income was largely driven by trading gains and changes in fair value due to changes in assumptions in valuation models.
Provision for loan losses declined to $5.9 billion in 4Q09 from $6.1 billion in 3Q09 while the total net charge-offs increased to $5.4 billion in 4Q09 from $5.1 billion in 3Q09. The increase in charge-offs primarily came from commercial real estate while the charge-offs of the residential mortgage increased marginally. All readers are welcome to download my CRE 2010 Overview in order to see where this is going. The nonperforming assets increased from $23.4 billion in 3Q09 to $27.6 billion in 4Q09 with non accrual loans increasing from $20.9 billion to $24.4 billion. The increase primarily came from a) residential mortgage where non accrual loans increased $2.2 billion and b) commercial mortgage where non accrual loans increased $1.4 billion. While the NPAs increased substantially in 4Q09, the allowance for loan losses increased marginally from $24.5 billion to $25.0 billion.
The credit quality of WFC loan portfolioCredit conditions continue to deteriorate as the delinquency rates continue to climb and the nonperforming assets continue to increase. Total nonaccrual loans increased 17.0% (q-o-q) to $24.4 billion or 3.34% of total loans* at the end of 4Q09 from $20.9 billion (2.8% of total loans*) at the end of 3Q09. Non accrual loans in commercial real estate increased 25.9% (q-o-q) to $7.0 billion in 4Q09 (5.6% of loans*) from $5.6 billion (4.5% of loans*) in 3Q09. The non accrual loans in residential real estate increased 22.2% (q-o-q) to $12.4 billion in 4Q09 (4.2% of loans*) from $10.1 billion (3.4% of loans*) in 3Q09. The increase in non accrual loans in residential mortgage came primarily from in residential first lien with nearly 53% of the total increase in the segment coming from Pick-a-Pay (mainly Option ARM) portfolio acquired from Wachovia. Total non performing assets increased 17.9% (q-o-q) to $27.6 billion (3.78% of total loans*) from $23.4 billion (3.15% of total loans*) at the end of 3Q09.
Loans 90 days or more past due and still accruing increased 13.9% (q-o-q) to $6.8 billion in 4Q09 from $6.0 billion in 3Q09 with q-o-q increase in commercial real estate and residential real estate at 18.5% and 5.0%, respectively.
There is 27 pages of Wells Fargo Q4 opinion and analysis awaiting those who are interested. Subscribers also have access to geographic charge-off analysis.
WFC 4Q09_Review 2010-01-26 05:37:52 1.32 Mb
WFC 4Q09_Review- subscriber edition 2010-01-26 05:38:43 1.46 Mb
I think that "GAAP-allowed book cooking techniques" is now an official FASB phrase.
Great piece, thank you very much for the analysis.
WFC is the worst of the worst and if anybody trusts their accounting shenanigans, they are out of their minds. even permabull "mr. overweight financials" D. Bianco hasn't issued a rating on WFC....long term review is the excuse.
How come the fat man from Omaha doesn't respond to this?
I challenge Warren Buffett to come on ZH and defend his baby.
Just aguess but he might say: in the long run wells if profitable...
and Buffett has a rabbi in DC. Obama will never let this POS go under.
You know that JPM is much worse and even better at book cooking. Maestro Dimon spoke just the other day that a double dip was very possible--perhaps a way to offset the remarks that they would make twice as much this year as last year.
Reggie, among others, have done excellent anaylsis of JPM showing the house of cards it is...
I'm NOT saying WFC is worth a dime, and Warren is definitely getting in the dementia realm, and that asshole Bianco just needs to go away...but, the worst out there is JPM IMHO. But just in case you were wondering, there is great activity with cheap! VOL in Jan 2012 for all the banks. Buy em cheap while you can. Open interest in JPM $40 puts in Jan 2012 is 10000+. The 10000 trade was done at the $40 strike last week at 7.30--a small one went off today at 6.40. WFC activity in January 2012 is squat. 1000 open interest at $30 and 327 at $25. I suggest these trades are ripe with vol so low. Problem with puts is limited upside due to limited downside. But doubling or tripling your money is fine. If you buy out far enough--and you know you should at this point because you pay squat for a year i.e. Jan 2011 to Jan 2012--then you can sit back and relax.
My number one rule these days is not to buy anything within 90 days of expiration--that way you can take advantage of the swings, take profits when you want, and always get out before time decay is your biggest enemy.
Thank you for your insights Howard!
I read Dimon's words the other day after the conference (i chuckled when jpm rocketed up that day after being weaker than the other banks prior to that) and he certainly sounded bearish (honest?). I'm glad that you brought this subject up again. Also, did you see the ZH article about JPM having reserved $3B for potential quant losses?
Seems to me you're back in the saddle again...I hope all is well!
Howard...just saw your note farther down.....is part of your 2012 thinking the off balance sheet mess that at the time of this writing (hey, the FDIC could extend the capital waiver) is supposed to be addressed starting in mid 2011? This FASB 166/167 issue (not many are paying attention i imagine except the bank CFOs) could certainly add to the attractiveness of puts in the early 2012 range.......
p.s. the squid did its first reiteration of STI today that is on the CONviction buy list. They are due for the 3rd or 4th on BAC...........
I don't think FASB rules will have anything to do with anything by Jan 2012....asset sales will force mark to market to be immaterial. The market it not stupid--and financials will go down, regardless of accounting horseshit. It just might have something to do with earnings though!
The FDIC will mean nothing by then. I expect 2012 will be an interesting year but 2011 could be just as brutal. And none of the bank stocks can possibly survive. I might add that off balance sheet assets (or dead wood) will be very visible by then. I actually think Jan 2011 puts will profit nicely due to broad market declines in the interem so overall, I'm just a bear as usual and looking to go severely non-leveraged overall short in the next 2 months--and liking the time right now for options. For the broad market, timing matters little for single leverage since 10,700 may be matched but I doubt (very seriously) that it will be breached to higher levels.
I have been talking about March 2010 for 8 months on ZH as a potential top. I am willing to give it up to late April, early May as a max but really don't care. We are topping and with divergent indices, with volatility low, now is the time to position for long term crises, IMHO.
well said and thank you.....sure is a slow topping process and the indices are diverging in an interesting fashion....volumes are comical.....take a look sometime at a spx daily chart and the action from july to oct 2007.....market did not want to give up its high at that time and it looks just like today's chart. it did reach and slightly breach the previous high and then went south. seems to me that it will be one hell of a battle for the bulls to get back to spx 1150 absent manna from heaven or some other spectacularly wonderful event.
I see no safe way to play WFC.
Sell long dated out of the money calls. And put in a stop loss buy order for the underlying + the call premium as a portfolio management tool. If you do not have the capital to cover say, 1000 shares (assuming writing 10 calls) then forget it. It won't work. But WFC will not gap up to put anyone in that trade into poverty. It's a safe trade and a money maker if you stay in the 6-9 month period in the option. All risk is managable in the bank options. Think about it. Or look at condors considering where WFC has traded for the last 8 months. That's another good credit spread. But overall, condors are better for Intel and Microsoft--until the bottom falls out of the market. Then you adjust with just writing calls.
Warren could gap it from $28 to $40 overnight. I suppose buying some cheap insurance calls more OTM than the ones sold would cover you.
The butterfly wings of the banks, too bankrupt to go broke, need imaginary pricing for their imaginary collateral -tis too humptied to get dumptied.
The state, too captured to go real, pressures the squints to 'Less Nessman' the bad speculative bets.
The bets, whilst still on the books, are an option ... the regulatory put socializing the downside, the upside beholden only to imagination.
Such an imagining is the MSR(mortgage servicing rights) bucketshop, where there is no active trading and hence the value in the bucket depends largely on the expected life of the mortgage.
Extend and pretend is the proposed means to mend. Pay no attention to the marks behind the curtain. What ever the banks want to show they show.
The Nancy Capitalists proclaim its' all good, and we all should support that which brings recovery home.
But a storm is being created.
What they fail to realize is that they are corrupting, not supporting the American Dream; through their desire to be prophets they have ceased to be makers of their own fate.
The American Dream is becoming the American Scheme as moral hazard is writ large.
With Mr. & Mrs. America feeling no compunction to walk away from their home if their neighbor does it, with the neverending Federales policy of exalting drunks and punishing the sober, with the phrase 'the whole thing's a Ponzi' being uttered by even the most ardent of conservatives at family functions - life is imitating the arts of the elites.
I couldn't have said it better.
"Extend and pretend is the proposed means to mend." Very nice poetically.
"The Nancy Capitalists proclaim its' all good, and we all should support that which brings recovery home."
Are you talking about that cu*t Pelosi? Nevermind... I'm liking you more all the time. Please consider yourself one of my family on ZH...whether you like it or not.
I am not Chumbawynnonajudd
Thanks HB,
a bit of background on Nancy Capitalists ...
http://www.google.com/search?hl=en&as_q=&as_epq=nancy+capitalists&as_oq=...
.
A most excellent and accurate view of the situation AnMo.
"What they fail to realize is that they are corrupting, not supporting the American Dream; through their desire to be prophets they have ceased to be makers of their own fate."
Black birds or black swans? An anthem for the interesting times in Amorica...
Things That Scare Me
http://www.youtube.com/watch?v=EBLI9jq6tUY
Fluorescent lights engage
Blackbirds frying on a wire
Same birds that followed me to school When I was young
Were they trying to tell me something?
Were they telling me to run?
The hammer clicks in place
The world's gonna pay
Right down in the face of God and his saints
Claim your soul's not for sale?
I'm a dying breed who still believes
Haunted by American dreams
Haunted by American dreams
.
with the phrase 'the whole thing's a Ponzi' being uttered by even the most ardent of conservatives at family functions
Very true in my experience and oh how very, very telling to see people remarking that the emperor is naked and pretty phucking ugly to boot. Well said AM.
poetic
I like buying puts on wells every time it does its irrational 3% spike in an hour move (like today). it then usually floats around that price for a day or so before giving up all of those gains shortly thereafter.
The company is a joke, and remember, they are not part of the NY "club." So look for the Fed and fellow gangsters to start confiscating some Wells assets in the near future.
I like buying puts on wells every time it does its irrational 3% spike in an hour move (like today). it then usually floats around that price for a day or so before giving up all of those gains shortly thereafter.
i've noticed that pattern on several occasions as well....that said, someone is keeping a bid under this thing big time. i'll bet the Fed owns a shitload of WFC common.
I exaggerated a bit as today's intraday move was in the range of 2% plus, but the concept is the same. Sometimes its a 3-4% move over a couple days, where you can accumulate and then dump after it inevitably falls.
i thought they hit the 3% mark today...i know i saw a 2.97%....as you said, the concept and that pattern has held true. will be interesting to see what happens to WFC after the fat man croaks as he is the big cheerleader.
you're right DH. I just remember a big green candle and then decided to load up.
Doesn't Wells have something like $2T in toxic assets off B/S?
You are correct sir!
Smells Fargo 09/30/09 10-Q
http://www.sec.gov/Archives/edgar/data/72971/000095012309059235/f53317e10vq.htm#130
Page 31
Total Qualifying Special Purpose Entities: $1,796,209,000,000
Total unconsolidated Variable Interest Entities : $237, 852,000,000
Crazy eh?
Heck just the 384 billion in commercial mortgage securitzations makes them too bankrupt
to go broke!
this story and the post on OBS liabilities reminds me of a good piece on bank implode last year:
http://bankimplode.com/blog/2009/09/17/wells-fargo-s-commercial-portfolio-is-a-ticking-time-bomb-exclusive/
the games WFC is playing with Wachovia assets and integration thereof are just unreal...
>>"According to sources currently working out these loans at Wells Fargo, when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer’s risk premium by writing credit default swap contracts against these subordinate bonds. Dan Alpert of Westwood Capital says these were practices that he saw going on in the market at large.
Keep in mind, should the junior tranches eventually default, then the bank is on the hook.
Alpert says in reference to how he saw CMBS trades get done, “These guys would say ‘We’ll just take back that silly credit risk you’re worried about.’ Of course that was a nice increase to earnings when they got the security sold. The bank made money at the time.”<<<
Silly Rabbit, Risk is for Bids...
http://www.youtube.com/watch?v=4oyRK-v8f-Y
LMAO...You are correct sir!...so reminiscent of Ed McMahon SNL parodies.
Phil Hartman's life was almost a bigger disaster than Wells balance sheets are currently, both a bloody mess. When there's that much blood on the floor, there's a body(s) somewhere, or else a lurching zombie.
Phil Hartman, his life ended in a bloody mess just like Well's balance sheets. When there is that much blood on the floor there are some bodies somewhere. If they are upright then it's because they are zombies.
If enough loan payment $ keeps coming in to cover operating costs then bogus book-keeping will do the rest.
minor point: Tier 1 capital to total assets is not the same thing as Tier 1 common to RWA...
RWA is less than total assets by almost $300 billion. Using that would lead to a ratio of less than 2.5%
Just for the spectacle this blogger would pay big money to put Smells Fargo folks' under sodium pentathol on their conference call.
Q1 :So... what is your name and weight?
Q2:By the way, The Wachovia deal that was promulgated in part due to Treasury's notice 2008-83, subsequently slapped down, that suspended the rule in Section 382 of the Internal Revenue Code of 1986 that disallows the use of a net unrealized built-in loss for financial institutions...how much of Wachovia's 'top-of-the-market purchases of insolvent companies' turned losses were monetized into taxable income?
Ath this point I dont think anybody cares ? Do you think they do ? I know sheeple that are tiptoeing back into the market to get that extra return - thanks to the deprivation from the Fed!!
Look, I think the banking system is insolvent but lets not play games. If you adjusted all banks tier 1 capital ratio for FMV the majority of those banks would be under 3%. Regions Financial would be close to below 0%.
That isn't an accounting game. It should be an accounting game but it is blessed by FASB which I would argue is ridiculous. It is very sensationalist and flat out wrong to say it is an "egregious accounting "frivolities"," by Wells Fargo.
but it is blessed by FASB
I would add that the US Congress threatened FASB in early 2009 to change FASB FAS 157 away from a mark to market standard or that Congress would pass a law to do such. The FASB board succumbed but the vote was 3-2.
Yeah, well reality is starting to catch up with a few of the FHML banks, even with their FASB endorsed games: About the Politically Malleable FASB, Paid for Politicians, and Mark to Myth Accounting Rules
Fear not, reality will set in soon for everybody else as well: It's Official: The US Housing Downturn Has Resumed in Earnest
Home prices have resumed there downturn.
i do agree with you Reggie and will read your housing downturn article when i wake up.
saw a flashback type of article recently where the seattle fhlb ended up taking the hits that they supposedly would not have taken using mark to model....it was used as an example during the 157 hearings early in 2009.
thanks as always for sharing your thoughts Reggie.
With these banks in this type of shape, does anyone seriously expect deflation?
They're ALL insolvent. The only thing keeping them afloat is that they're zombies. The Fed stands by to print whatever's needed to keep the cash ponzi alive.
The FRN has no value; time to accept that. This is like a bank run on the gold standard except it's the FRN standard. They will manufacture those.
Inside these banks' balance sheets are MASSIVE, incredibly supermassive leveraged vehicles. THAT is why they are insolvent.
If banks were really "lenders" in the conventional sense, do you think they'd have gone bankrupt due to deflation in 2008????
They are more scared of deflation than anyone. Their shares' price action in the deflation days before QE should tell anyone all that they need to know.
Kinda like the Fed's balance sheet. Now there's the proverbial Biblical shining light upon the hill guiding all mankind for a new and improved Rapture.
They're ALL like Wells. Ain't no winner out there, folks.
I've got news for you folks - it's not just Wells - it's almost every bank in America. They are all INSOLVENT zombie banks with NEGATIVE capital. They're just a bunch of CROOKS creating book-keeping entries and pretending to be "banks". Who gives a s**t about the FDIC "regulations"?
+1
What do you mean?
The US authorities say that the banks are solvent...
Am experiencing a bit of cognitive disonance here.
I love this site, and Tyler – you do an outstanding job of bringing forward news that is unlikely to be found anywhere else on the web. That said, and with all due respect, for the purposes of trading a lot of this information is moot. Nothing personal, but IMHO – unless and until the Congress actually demonstrates both some knowledge and willingness to limit the FED from manipulating the market, either directly or through its operatives, nothing is going to change. The same must be said of the SEC – unless and until they begin to enforce the law and put in place rules that prohibit the kind of manipulation we see every day, and start prosecuting and PUNISHING some of the Big Players to the point that it actually inflicts pain – nothing is going to change. At this moment, the market is so totally controlled that someone could dig through data and PROVE FRAUD, and it wouldn’t matter! This may sound defeatist, but “THEY” have a vested interest in assuring that the market goes in one direction – UP – and until either the measures mentioned above occur, or true market forces overwhelm their efforts to manipulate the markets – that is exactly what this market will do – GO UP!
gun....ZH is trying, amongst other matters, to do exactly what you are talking of: trying to inform people of what is going on. We need to keep bringing the truth to the surface and keep the pressure on.
"That said, and with all due respect, for the purposes of trading a lot of this information is moot."
With all due respect, and nothing personal, fuck the traders. That's not what this site is about, at least as far as I've seen. Trade this market, and your gonna get what you deserve for gambling. Oh, but you're smarter than that, not you....
If you have money in the banks, or are participating in these fraudulent markets, you are part of the problem. I hope you sleep well at night, your name might as well be Bernanke or Geithner.
+1000000
I have nothing against traders/speculators per se, but what we have today are not "markets" but casinos. They move not on fundamentals but [are made to move in] the direction in which the maximum number of little guys can be RIPPED OFF. They are Ponzi schemes - not markets. Instead of "trading" them, we all should be out there burning the rigged exchange down.
There will be no torches until the proles can't get their nepenthe in the form of Big Macs and WWF. The peasantry are all broke and don't give a shit until you upset their applecarts (throw them out of their house they think they own or empty shelves at Walmart). Boil the frog slowly enough and he doesn't jump out of the water.
Please stop referring to the NYSE/NASDAQ as a "Casino" - it is an insult to casinos. Casinos have rules and regulations.
+1. this comment had me laughing out loud because its' true!
and a "real" casino would at least give us free beer. Reason enough to rise up
Next you'll want Sheila in a low cut push-up serving you. Stop the madness!
Crab Cake - I'm not smarter than anyone and don't pretend to be. I hate the traders as much as anyone else - they have destroyed the market IMHO. The point I was TRYING to make is that the FED and their operatives control this market. Fundamental "News" is moot - just look at all of the economic data we have been getting for months. Absolutely NO JUSTIDFICATION for the market trading at current levels. So while I may not have phrased it well - the point is the market is now ruined for traders, investors whatever. The FED has artifically held rates at rediculous low rates, basically forcing people to either lose to inflation or be forced into taking risks in the market. Personally I would not buy this market with your money - simply too dangerous. But what is someone to do - bury their money in a matress? I only wish they would allow free markets to operate - take stocks to levels where they represent fair value - so people could buy "Invest" without worrying that tomorrow the FED could withdraw support and the markets would get cut in half. So whle I do not consider myself a trader - I'm no idiot either - not smarter than anyone else necessarily - but smart enough to know that in this marekt - buying and holding will get you nowhere more times than not. It is what it is, I cannot change that, so I just try to adapt and survive like everyone else.
And as a closing thought - I would say that it may be more productive for people to actually go to this site http://www.sec.gov/ and check out where the SEC is seeking public comments - or go to your Senators or Congress Representatives links and express your concerns. The fact of the matter is - if you read the comments, the ONLY people who submit comments are from industry -- not John Q Public. Seems everyone wants to sit around and piss and moan about how fucked up the market is - but VERY FEW actually do anything to try to change it. The SEC is seeking comments on Dark Pools, Program Trading, HFT Trading -- basically all of the things people here on ZH bitch about -- but I would venture to say fewer than 10% have writen the SEC or the Representative to try to bring about change.
What's in short supply at the SEC is integrity, not ideas.
Yes report to the SEC. For instance if you ran across a 60 plus billion dollar ponzi scheme run by Bernie (hypothetical name) and turned it in with proof multiple times over multiple years, they would surely listen and launch an exhaustive investigation. Why waste your time unless you're going to be writing a book about it later. Guess I see your point 90% of the readers on this site are informed enough to not report a criminal conspiricy to the mob.
So what's your alternative? Either cry your defiance to an uncaring bureaucracy, or drop your trousers and bend over with a smile. If enough people take notice of something, it will become news. If you took your story about "Bernie" to the SEC and been ignored, try the state AG. Try the New York Times. Etc.
Dude - it's simple. All the talk about the Great Depression, and Japan's Lost Decade(s) goes over the heads of a large majority of America. However, they can look at the One True Chart and "see the picture". As long as the Dow/S&P doesn't look like that again, then it doesn't matter what nightmare charts the St. Louis Fed is churning out.
Hey Tyler here's an idea for a post ...
List aggregate Qualifying Special Purpose Entities and Unconsolidated Variable Interest Entities for the big banks...
Could use a good laugh / cry / laugh / primal scream ...
Nice idea AM (thank you for listing WFC numbers) but is it worth the effort at this point due to Sheila "don't worry about your bank capital boys" Bair's capital waiver pass for 1.5 yrs on the FASB 166/167 crap?
http://www.fdic.gov/news/news/press/2009/pr09230.html
Won't matter until it does.
See my post above on option activity in banks, DH.
What ever. Nobody gives a fuck anymore. We all know were fucked. This shit that comes out everyday just rubs salt in the wound. In the mean time, rally on.
I'm sad to admit I'm a CPA operating under the promulgations of the cowardly FASB. Its only a matter of time until they'll need to nationalize the banks or they'll risk mass bank runs.
A bank's Capital is what the government says it is, period. And they have bought the government...........
This is pretty thoughtful, but I do have a few nits to pick:
1. The biggest adjustment (the write-down) would have to be tax-affected by whatever Wells's marginal rate is- something like 40%.
2. Your denominator would have to fall also. You can't just reflect the write-off in your equity and ignore the impact on your RWA.
Assuming the loans get 100% risk-weighting (and the cash from the tax shield gets 0% risk-weighting), you're actually left with something like 4.1%. Still awful, but it's not like the FDIC would seize WFC even if it was sub 3% tier 1.
$Trillion in essentially uncollectable HELOC; all those nice juicy Golden West Showers PO(s) ARMS.
Look, we all know it's a train wreck. But the reality is, it's only a matter of whether they can extend and pretend longer than you can stay solvent. No administration is going to let this one go.
Something rather disturbing happens when societies no longer function according to both statutory law AND common collective law; they polarize and self destruct. A human body does the same when catabolism http://en.wikipedia.org/wiki/Catabolism outweighs anabolism. That which builds up is not offset with that which tears down -- and the body eats itself. Are we to really look into this matter we will find certain centuries old influences at work (read colonialism) yet now they are going inward as lawless off balance sheet tampering has flung into full tilt madness. This all might be a very long cycle we are seeing here...
The displacement of earned wealth by unearned skimming has now started to eat upon actual production. Again, until we dispose of our heritage in the form of organised looting seen from Cortez thru Skilling the age of deception will remain upon us.
Where are the cops?
To be fair, Wells does have $16.6 Billion of government guarantees that will ameliorate their staggering late stage delinquencies somewhat:
The definition of Government Guarantee is defined as follows by the FDIC: "Loans and leases which are wholly or partially guaranteed by the US government past due 90 days or more and nonaccrual on a consolidated basis note: listed as memoranda only and is included in total noncurrent total assets."
Even taking out the Guaranteed portion WFC is still running $32 billion 90+ days and greater past due versus $22.8 billion in Loan Loss Allowance:
http://www.wlmlab.com/bkDA.asp?inst=HC1120754&pg=da
Now, the question becomes do they have enough Purchase Accounting setasides to handle the wall of charge offs coming? Even if they do, we should still be worried about the non-accounting impact this OREO is going to have on home prices independent of Wells' stock price.
The wlmlab.com site is going through a major upgrade and will include Government Guarantees as well as Income, Expense and OREO data. I welcome any input or recommendations: moreland_wl@yahoo.com
I've enjoyed your articles on ZH and hope to see more. Thank you.
added your site to favorites and will check in.
I'm almost surprised Tyler and Geoffrey Batt bothered to analyze what paperwork the companies do make public.
I think we can safely assume that analyzing the paperwork of any and all banks,corporations, and businesses, not to mention municipalities, trade unions, pension plans, hedge funds, et al, will show a negative cash flow.
Negative cash flow.
In the future, we won't say we have +23,394 monetary units in our account, we will say we have -423,305,593,495,593 monetary units in our account and that's standard practice these days.
Wait, all the big corporations already went to that model years ago.
Still, I admire Tylers and Geoffreys hard work factoring
what we already know.
-MB
Unhappiness is having your 401k in WF. I have moved the $ into non Wells funds...(they had me in a WF MM that was not even listed ahhhh!) Hope it will hold together or should I close it and roll it into something stable like ? I do not lose sleep at night..the drugs are good.
No problemo. Just have the taxpayer guarantee everything or let Goldman take them out at $1.53 per share. Either way, the taxpayers eat the crap sandwiches in the end.
FDIC???
Hyper.....
http://www.shadowstats.com/article/hyperinflation-2010.pdf
I think this info - if it is true - should be good for the WFC stock to rocket at LEAST 10x.
ROFL! Hahahahahahaha!!!! Stock "market"!!!
Another good warning. If you have more than
250k in WFC you should make adjustments.
Sounds like a wedgie to me. So that means "underpants on the ground"?
Folks, I know this point has been beaten like a dead horse, but everyone needs to get their money out of the "system" immediately, or it will be taken from you. This is simply a game to see who takes the loss first, and those in power will stop at nothing to make sure they don't take the loss. You will be forced to take a loss thru foreclosure or other seizure of property, increased taxation, currency devaluation, or all of the above. Repeat, if you have *money* anywhere in the system, it needs to be removed and put in a large anchored gun safe in your house. At least a portion (or all, depending on your preference) of your currency must be converted to physical gold, land, food stuffs, and gasoline, immediately.
This is an ongoing emergency announcement to fellow citizens.
BINGO! And just to clarify for those who still don't get it, immediately means RIGHT THE F**K NOW!
I m using the recent Citi April 1 "alterations" to get people out of the big 4. Last week I got 2 colleagues out of Citi and Chase and into Canadian TD. Do you understand how difficult it is to get someone to switch their banks after nearly a decade?
I had to explain to them how we are placing all these events in a holding pattern to prorect banks under the guise of helping ourselves. I proved to them through unemployment, tax credits for homes, tax breaks and mythical accounting how the entire goal of this is to prevent homes from being affordable. It is pretty simple stuff.
Who wins from affordable homes? The middle class. If homes get cut 75% from here (which is exactly where the should be) they now need less of a downpayment, have lower payments monthly, have less of a financial burden monthly and as time increases the payments become easier as income rise.
Who loses from affordable homes? Every big bank sees their "assets" sour and they go under.
Instead we spend our lives living to work instead or working to live. Im giving people one red pill at a time and sites like Zerohedge make manage this task considerablly easier.
Viva La Resistance beetches
Sell it. Sell it ALL.
(Paper assets i.e. - including paper currency).
That goes straight against your hyper argument, GG. If you think hyper is going to happen, then you buy stocks. But you know better deep down inside. This is not a Zimbawee situation with the US stock market. No fucking way. I'll send you 20 Krugs in 2012 if I am wrong. And no, you can't have my address.
I'll give you my address for 20 Krugs LOL!!
We live within 3 hours of eachother DH--we should just have coffee before 2012.
We will do that someday my friend!
stocks (ex. precious metals) do rather poorly during the latter (hyper) part of inflationary periods. the inflation adjusted return to the u.s. stock market from 1965 to 1982 was something like negative 75%. ditto the latter part of deflationary periods (which it certainly seems like we've been in since mid 2007).
Never believe anything until it's officially denied..
Nice Diamond pattern on the WFC monthly
Ah, Wells. My buds. A couple of points:
1. Those jackals at Wachovia (using a sub, Evergreen) stuffed toxic MBS into the New Covenant Fund, which is the main investment vehicle of the Presbyterian Church USA. Their bond fund lost nearly 20% in 2008 compared to benchmarks of about +/- 2-5%. Less than 1% of this supposedly safe fund was even in Treasuries and less than half was even AAA.
2. I am proud to say that I just refinanced my mortgage away fromthese lunatic criminals to a credit union last week. Wells, Buffet, say buh-bye to another six figures of interest income.
Blechhh. Losers.
.
Well, if you round a 2.91% ratio it's pretty much 3% right?
Ha! There are no longer "rules" associated with our money for the big boys. Perhaps Japan was the test case -a model if you will. My guess is we'll have a long slow deflationary controlled burn in assets (real estate), with Frankenstein banks, and volatile energy/food prices. Imported oil will be the catalyst, and food will be the linchpin.
Then again...we may have a rather large distraction coming soon, that will encourage the right "behavior"...
.
Wow, TD and crew (and Batt). Amazing piece and writeup, guys. Marla, as always, indispensable.
Peace.
Does this analysis include the large (excessive probably) marks they took on the Wachovia portfolio? I'm not seeing any sign it does, and if that's the case, you're missing a lot of billions they've still got.
the bought and paid for whore accountants at fasb can be thanked for this...and the shithole congress and the asswipe presidents can be thanked for the dishonesty, fraud, hoax, and destruction of the truth....
with a lying sack of crap in the whitehouse it is no wonder that truth, as in gold plated tungsten, is in short supply....
that's another lying sack of crap in the white house to you.
great piece. hats off, yet again, to TD & Geoffrey Batt.
Are you guys still short banks? I sense a lot of conspiracy theories and pessimism here. Good luck with shorting a bank trading at 7-8x normalized earnings that has the lowest cost of funds (currently paying .59% on deposits) in the industry.
You seem to be confusing Tier 1 Capital (FDIC mandate of 3%) with Tier 1 Common (Currently FDIC has no mandated minimum ratio). WFC reports a 9.3% Tier 1 Capital. This is the ratio you should be working off of to try to get it below 3%. Not possible as it includes more components of equity.
Oh and when you decrease a denominator the ratio rises. So a decrease of $300 billion from Total Assets to Risk Weighted Assets improves the ratio, which is not what you stated in a comment above. Also, where'd you get that first residential mortgage delinquency rate? Nonaccruals on this book are at 4.4%. 17% as you state is not even close.
Despite all of this, Tier 1 Common is a worthless metric. As long as the cash coming in the door (um, remember the income statement) is larger than the losses over time WFC's balance sheet is unaffected. Earnings power is what matters. WFC is building capital not destroying it. It's earning more than 3% on assets in pre-provision pre-tax income that should more than offset losses overtime. Buffett owns about $9 billion of WFC which he started accumulating in 1989. It's his second largest position. My money is with his.
From a trading point of view, WFC looks very much like gold as of late. The movements are quite similar, with the occasional jump, or sharp sell-off, but with a bid always materializing and grinding it ever higher. Fundamentals aside---of what use are fundamentals nowadays---if I am bullish gold I must be bullish WFC, and vice versa. The feel of the price action is the same.
If that's the trading point of view, then I'm glad I'm not a trader.
That is very true . The difference is Gold is trading on the fundamentals of demand WFC is cooking it's own fundamentals . When you look behind the curtain of WFC or FITB or any bank you come up with a "Wizard of OZ (I Picture warren behind the curtain perfectly.lol) Scenario", where everything in front of the curtain is an illusion. On another note , watching the regional banks yesterday in the S&P it is evident this rally is running on anything close to what can be called fundamentals . Every time those banks take a hit some one is there to pump em back up.
Guess it depends on what the definition of fundamentals is. On a fair value basis I suspect WFC is priced correctly somewhere well below zero, and in a fair and just world anyone contributing to its fraudulent bookkeeping would face hard time. On the other hand, a major holder/buyer of the stock is enough of a mercenary that he could get blood out of a vampire squid, plus he has enough connections to arrange whatever bailout the bank might (will) need. Those are not the kind of fundamentals that add to the stock's inherent value, but they do make its price rise. I guess an appropriate analogy is that one need not love a women to be able to perform with her in a conjugal sense.
So True!!!
What would be interesting to see is an estimate of the total losses WFC will endure versus how much they are likely to make given that short term interest rates will stay low for the next several years. Even if no new loans are made would the existing book, or what's left of it after defaults, eventually break even and if so, how long will this take?
The ironic thing is that the more folks talk about inflation which helps to keep long rates high, the more money the banks will make. If deflation becomes the concern and long rates fall, it would be a nice mark to market positive for the banks existing book. Either way they make out fine as long as they can outlast the current losses.
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