Using Veritas to Construct the "Per…

29-04-2017 Hits:82132 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:77760 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:77330 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:82077 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:78667 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:80958 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:47839 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:79669 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:79189 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:79740 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:84719 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:81665 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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I run a rather interesting site. I believe I provide uncommon analysis, and due to that fact it is not necessarily appreciated by the masses. Point in case: I say X company is fundamentally weak and the share price subsequently goes up and/or they report "record" earnings. There are some that then regard my analysis as wrong or irrelevant, or worse yet not applicable because it uses the fundamentals. It is unfortunate that such a large cross section of investors now truly believe that fundamentals no longer apply - or worse yet believe short term price movement is the grand arbiter of value! Fundamental analysis is basically the measurement of value against risk. When one believes these principals no longer apply, then one no longer has confidence in the capitalist system and/or one has been hoodwinked by the most recent bubble/burst. This is where I believe we are now, and so shortly after just three bubbles were blown and popped in the last decade. - with one just popping last year! That's right three, literally one every three years or so - dot.com/telecomm, real estate/credit, and now the government induced equity bubble. We can arguably throw 2007 oil in there as well. Those that follow me know that this is what I do for a living - see  "The Great Global Macro Experiment, Revisited".

Understanding my proprietary investment style

 

As you can see, there is a reason why they call this BoomBustBlog! Many people believe we have hit that trough in March of this year. I don't. Even if we did, we have literally approached bubblicious territory again which sets us up for another spin at the asset cycle.
reggieboombustcycles.png

Alas, I digress... Back to the point. I am a capitalist and believe in the principals of capitalism. Thus, I do tend to adhere to the fundamentals. Sooner or later, the market always returns to the fundamentals. The ensuing ride may be rough, but it is also nearly always guaranteed. This brings us to Wells Fargo 3rd quarter earnings report and their "record" earnings. As a quick recap of where I am coming from re: Wells then on to a review of their Q3-09 results...
  1. Doo-Doo bank drill down, part 1 - Wells Fargo - I introduce Wells as a founding member of the Doo Doo 32 list of banks to encounter distress in the Spring of 2008. Here I was the first to introduce the blogoshpere to Wells extremely aggressive accounting games, namely extending the definition of the term delinquent in order to hide HELOC losses!
  2. The open source mortgage default model I released an open source spreadsheet that detailed defualts in almost all states sourced from independent government sources. Apply these loss rates to Wells portfolio and the truth is evident.
  3. Fact, Fiction, Farce and Lies! What happened to the Bank Bears? I attempted to stress the difference between economic and accounting losses. Yes, Wells has "record" accounting profits, but also has record economic losses as well.
  4. Beware of Bank Earnings Propaganda - They are still in BIG trouble!- self explanatory
  5. Wells Fargo reports in a few hours and I wonder how forthcoming they will be with their credit losses
  6. Wells Fargo Q2 2008 Highlights  
  7. Green Shoots are Being Fertilized by Brown Turds in the Mortgage Markets

Subscriber links with the real heavy analysis can be found at the end of this article. 

Reggie Middleton on Wells Fargo's 3Q09 Reported Performance

Results Review - 3Q09

Wells Fargo & Co. (WFC) reported higher-than-expected earnings for 3Q-09, beating consensus estimates for the second time in a row, primarily on back of increased revenues from mortgage banking. Although WFC's reported EPS at $0.56 was up 14.0% y-o-y, it declined 2.0% q-o-q in 3Q09. A y-o-y growth in earnings reflected strong growth in non-interest income (up 169.8% y-o-y) and net interest income (up 83.1% y-o-y) led by higher customer base and increase in product offerings to its existing customers, partially offset by increased provisions for credit losses (up 144.9% y-o-y and 20.2% q-o-q) during the same period. Excluding the impact of gains from mortgage servicing rights (MSR) and hedging gains (included in mortgage revenues and overall constituting a part of non-interest income), the Company's earnings declined in 3Q2009 on q-o-q basis. The contracting base of interest earning assets (q-on-q) along with higher loan losses provides a significant headwind to the company's valuation in the near-term.

In 3Q-09 WFCs' net charge-offs increased to $5.1 billion, or 2.5% of average loans (up 156.2% y-o-y and 16.5% q-o-q) primarily due to higher charge-offs from Wachovia's loan portfolio which contributed 33.8% to total net charge-offs. Wachovia's net charge-off rate deteriorated sharply to reach 1.66% in 3Q09 from 0.92% in 2Q09 while WFC's legacy loan portfolio charge-off rate rose 2 basis points to 3.37% in 3Q09 from 3.35% in 2Q09. Further, non-performing assets also rose 27.9% q-o-q to $23.5 billion as of September 30, 2009, or 2.9% of total loans, reflecting deterioration in the Company's consumer loans and Wachovia's commercial and commercial real estate nonaccrual loans.

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The major support for WFC came from mortgage banking revenues which increased to $3.1 billion (up 243.8% y-o-y), representing 13.7% of the total consolidated revenues in 3Q09 compared with 8.6% in 3Q08. Out of total mortgage banking revenues reported in 3Q09, $1.5 billion were related to "non-recurring" mortgage servicing rights (MSRs) and hedging gains. Excluding the impact of these items, the Bank's non-interest income contracted 4.7% q-o-q to $9.3 billion in 3Q09 as compared to $9.7 billion in 2Q09. In 3Q09, non-interest revenues (including MSR and hedging gains) accounted for 48.0% of the total net revenues against 47.7% in 2Q09 and 38.5% in 3Q08.

More importantly, net interest income declined 0.7% q-o-q to $11.7 billion in 3Q09 from $11.8 billion in 2Q09 despite 0.06% increase in net interest margin off lower average earning assets in 3Q09. Net interest margin, however, declined significantly on y-on-y basis - to 4.36% in 3Q09 from 4.79% in 3Q08 - as decline in yield on interest earning assets exceeded the decline in yield on interest bearing liabilities. The tough credit environment and decline in loan demands contracted the total interest earning assets in 3Q09. WFCs' total loan portfolio contracted 2.6% q-o-q to $800.0 billion in 3Q09.

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Net income to common shareholders reached $2.6 billion (increasing 2.4% q-o-q in 3Q-09) primarily off higher mortgage banking revenues (which included $1.5 billion gains from MSRs and hedging gains in 3Q09 versus $1.0 billion in 2Q09), lower non-interest expenses over 2Q09 off FDIC charge of around $565 million in 2Q09 and decline in tax rate of 2.0%. Excluding the impact of gains from mortgage services rights and hedging gains (recorded in 3Q09 and 2Q09), and FDIC charge off recorded in 2Q09, net income in 3Q09 declined 47.7% to $1.1 billion from $2.2 billion in 2Q09.

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  wfc_q3-09_metrics.png

 

In 3Q09, provision for loans losses increased significantly to $6.1 billion or (3.06% of total loans), up 20.2% q-o-q, while net charge-offs rose to $5.1 billion (2.48% of total loans) with an increase of 16.5% q-o-q. Total non-performing assets (NPAs) also increased to $23.5 billion (2.93% of total loans) from $18.3 billion (2.23% of total loans) at the end of 2Q09 and $6.3 billion (1.53% of total loans) at the end of 3Q08. The growth in NPAs was driven by deteriorating Wachovia's loan portfolio.

Here I introduce you to another "I told'ja so" starting as far back as September of 2007:

wfc_3.png 

 

The allowance for credit losses totalled $24.5 billion or (3.1% of total loans) in 3Q09 as compared to $23.5 billion or (2.9% of total loans) in 2Q09. An increase in $1.0 billion credit reserve was estimated by the management as inherent losses on its portfolio as of 3Q09, particularly from commercial loan portfolio. Further, loans 90 days or more past due and still accruing increased to $18.9 billion, or 2.4% of total loans, in 3Q09 as compared to $16.7 billion, 2.0% of total loans, in 2Q09. The banks' Texas ratio also worsened to 32.5% in 3Q09 compared with 29.9% in 2Q09 and 20.7% in 3Q08.

 

In closing, and in short on WFC, I told you so. Many times, and these days, most of the time, the economic truth is not reflected share prices, CNBC nor accounting numbers. You can be sure to get the unbiased record from your buddy Reggie, though. So as to not simply pick on Wells, JP Morgan, this country's most respected bank, is really in the same position save a trading arm that had artificially high margins that are already on the decline (I will post an article on FICC risks and revenues next). See "Reggie Middleton on JP Morgan's Q309 results" and "If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 - JP Morgan, then download:

More rabble rousing links of interest:

 

Wells Fargo Subscription Content

WFC Off Balance Sheet Exposure WFC Off Balance Sheet Exposure 2009-10-19 04:11:50 259.25 Kb - The complete off balance sheet review 

WFC Research Note Sep 2009 WFC Research Note Sep 2009 2009-09-30 13:01:30 281.29 Kb -  The Skinny on that CDS exposure. Are they doing the AIG thing too???

WFC Investment Note 22 May 09 - Retail WFC Full Forensic Analysis & Research Note 22 May 09 - Retail 2009-05-27 01:55:50 554.15 Kb

WFC Investment Note 22 May 09 - Pro WFC Full Forensic Analysis & Research Note with Anticipated Capital Requirements under revised SCAP/Stress testing 22 May 09 - Professional 2009-05-27 01:56:54 853.53 Kb This is the document that ties all of the ancillary research togther and includes our best estimate as to the amount of capital Wells Fargo will need to raise!

Wells Fargo ABS Inventory Wells Fargo ABS Inventory 2008-08-30 06:40:27 798.22 Kb