Wells Fargo Doo-Doo Bank Drill Down, Part 2

We will be comparing and contrasting lot of banks on the Doo-Doo 32 list, with an occasional thorough drill down and forensic valuation. This is a brief overview of Popular compared with Wells Fargo (WFC), with a few more banks to come. I will use this matrix to compare many of the banks in the list side by side.

The Asset Securitization Crisis Analysis road-map to date:

1. Intro: The great housing bull run – creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble – A comparison with the same during the S&L crisis
2. Securitization – dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble – declining home prices and rising foreclosure
3. Counterparty risk analyses – counter-party failure will open up another Pandora’s box
4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue
5. Municipal bond market and the securitization crisis – part I
6. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
7. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
8. More on the banking backdrop, we've never had so many loans!
9. As I see it, these 32 banks and thrfts are in deep doo-doo!
10. A little more on HELOCs, 2nd lien loans and rose colored glasses
11. Will Countywide cause the next shoe to drop?
12. Capital, Leverage and Loss in the Banking System
13. Doo-Doo bank drill down, part 1 - Wells Fargo

End of the Secular Bull Market?

We have had a strong bull run in nearly all risky asset classes over the last 10 to 15 years: stocks, real estate, commodities, emerging markets, you name it. Is the jig over. Study the charts below.

Valuations still high?

For those who think stocks are cheap due to the rapid reduction of prices of late, think in terms of valuations and historical trends and you may find that they are not as cheap as you thought - particularly if you believe in earnings cycles. We are just coming off of an earnings cycle peak.

The Biggest Risky Asset Run of All Time???

Housing, stocks and commodities are setting all time or near all time records. We have begun a correction in all three of the risky asset classes. Residential real estate has the farthest to fall, by far. As a matter of fact, adjusting for inflation, in residential real estate no other bull run (including the gold rush) has produced even half of the real price spikes that the last bubble has. Do you know what happened after the last, much lesser, real estate bubbles? What do you think will happen this time around? All of that talk of prices stabilizing in '09 or '10 lacks historical precedent!

Loans & Risk

Now, let's get back to those Doo-Doo banks, shall we. This is the Doo-Doo Bank grid that I will put nearly all of the banks in.

Performance & Market Info

Other Stats & Facts

I will be posting about 30 other banks over the next few days, with an intense drill down on about 3 of them.

Comments

[jjason:]

Thanks for the article Reggie. Keep up the good work.

2008 Jun 05 10:21 AM

[prescient11:]

Your graph on housing prices is not very good. Otherwise information is pretty good and nice breakdown. I think you are incorrect about the amount of correction needed in housing prices though. We have a bit to go, but nowhere near where you suggest, I remember seeing a graph with the proper x and y coordinates that showed that we were nearing the proper correction back to the mean and should be there by 2009 at the latest.

2008 Jun 05 11:58 AM

[wbianco:]

Reggie,

Where are you getting your data on house prices -- just from an eyeball of the second figure, you're saying that something doubled over the last few years. Seems a bit overstated, especially on a nationwide basis.

2008 Jun 05 11:16 PM