najdorf

Well-Capitalized Regional Banks: The Bottom Is In

On Jul 15 09:42 PM MEXX wrote:

> The so called "conservative banks" are labeled conservative because
> they usually increase their loan loss reserves during bad times and
> often during good times (when they can afford to). The conservative
> banks will put more money aside than required by the regulators.
> This is not money that sits in the cash account.

Wells Fargo didn't do this. They only got serious about reserves in Q407.

> You have to dig much deeper than yahoo's balance sheet numbers to
> figure out a banks loan loss reserves since it is usually a contra
> account against the loan asset base. So a bank showing say $1B in
> loans on their balance sheet could actually have $1.1B in outstanding
> loans because they have been netted out their loan portfolio by $.1B
> ($100Million) to account for loan loss reserves.

It's usually fairly prominent in quarterly and yearly reports - just go to the SEC site to make sure Yahoo isn't missing something.

> To determine how a bank's loan portfolio is performing charge offs
> as a % of loans is a good metric. charge off's for banks tend to
> be <1%, uptrends in charge offs could be a huge red flag.

WFC is well over 1%, mostly due to HELOCs.

> Banks that are very profitable can afford to put more money aside
> for losses. Conservative banks that are very profitable are specially
> attractive that is why Warren Buffet is a big fan of WFC.

They've got the history of profitability, but I don't know that reserves are going to be adequate. It depends on how well they did dumping HELOCs early in the quarter when people were thinking "maybe the sky isn't falling". We'll see tomorrow.