Using Veritas to Construct the "Per…

29-04-2017 Hits:53538 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:53621 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:52863 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:54881 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:54134 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:56658 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:35774 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:55189 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:55066 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:55406 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:58030 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:56863 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 have decided to release a significant amount of opinion on Wells to the public, and have created an extended version of the report for subscribers with geo-specific charge-off estimates stemming from the FDIC/NY Fed model that we have created in house. A rather comprehensive piece of work. It appears that much of the sell side community is much, much more optimistic on the prospect of Wells than I am. It must be the Warren Buffet investment...

In short:

Total revenues of Wells Fargo in 4Q09 increased 1.0% primarily coming from increased non interest income from mortgage banking and realized gains on debt securities as well as other trading activities. The interest income was down 2.0% (q-o-q) owing to reduced interest earning assets. Loans declined nearly 2.1% or $17.1 billion and the securities AFS (primarily MBS) declined 6.0% or $11.1 billion. The interest expense declined by 4.0% offsetting some of the decline in interest income. Net interest income declined 1.6% to $11.5 billion in 4Q09 from $11.7 billion in 3Q09. 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.

Non interest expense increased to $12.8 billion in 4Q09 from $11.7 billion in 3Q09 primarily from higher Wachovia merger integration and severance expense and expense on ARS settlement. Net income was down 9.1% to $3.0 billion in 4Q09 from $3.3 billion in 3Q09. WFC charged nearly $2.4 billion in preference dividends in 4Q09 out of which $1.9 billion was deemed the dividend upon redemption of TARP preferred stock. The net income available to common shareholders was $394 million against $2.6 billion in 3Q09.

Reggie Middleton's Take

The bursting of the massive real estate bubble and associated Asset Securitization Crisis has seriously impaired the US financial system. US banks' profitability and solvency will continue to be threatened until their balance sheets are purged of the loan losses by writing down the portfolio to the realizable value. This value is currently, in our opinion, on a continuous downward trend, contrary to the opinion of many analysts, consultants and pundits. As pointed out in the CRE 2010 Overview and my blog posts as far back as 2007, commercial real estate (CRE) is the next major crisis brewing due to the inability to rollover underwater debt and the signs of the same have started to emerge in the banks' books. This, coupled with continuing losses from the rolling losses across various classes of debt in the residential space and weak consumer lending and associated non-performing assets, underlines the huge risk attached to the sector and undermines any investment proposition.

  wfc_q4_charge-offs.jpg

The credit quality of WFC loan portfolio

Credit 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.

wfc_q4_allowances.jpg

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. 

archive  WFC 4Q09_Review 2010-01-26 05:37:52 1.32 Mb

pdf  WFC 4Q09_Review- subscriber edition 2010-01-26 05:38:43 1.46 Mb

Morgan Stanley, Goldman Sachs and Suntrust are up next, then I will extend my China short thesis (which is paying off handsomely as are the MS and GS shorts) and I will finally released the Central European short thesis - which should be a biggie.