Wednesday, 15 January 2014

Wells Fargo - grinding forward but wait for volatility

Wells Fargo is a bit more of a classic bank than peers like JPM and Goldman Sachs, with less influence of a corporate and investment banking unit as shown below:

What I took from the numbers is nicely captured in the graphic below: a quarter of relative dullness.  Yes, EPS and revenues inched forward quarter-on-quarter, but return on equity and efficiency ratios actually worsened slightly. 

And why isn't the bank pushing forward quicker?  Well that would be the mortgage side where originations are down 38%. 

The mortgage sector issues are not new and the Wells Fargo shares ultimately barely budged today as the core banking and wealth management operations continued to push forward.  Such is the benefit of the aforementioned diversification.

With a near US$30 book price and just sub 14% return on equity, I come up with a US$41 level to buy Wells Fargo shares.  That's the level last see in October when markets sold off. 

Wells Fargo still feels the sort of bank you buy on a bad day.  Diversified, at face value sensibly run but not exhibiting value today in my view. 

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