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browndlee

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  • Wells Fargo: What The Numbers Say [View article]
    Full broker was my way of saying Universal bank. WFC has retail brokers in their branches and this part of WFC was greatly expanded by the Wachovia aquisition. Wachovia owned AG Edwards along with the retail division of the old Pru Bache. This part of the investment business is OK, although it creates conflicts within the bank with the trust and Investment management divisions that were a traditional part of the bank. Wachovia also had an institutional presence serving clients and considerable trading for their own account located within their own investment division. I understand they are expanding their presence in London. This is the part of the "broker business" that concerns me. It leads to highly paid B school stat freaks taking big risks based on capital market theory. It's highly seductive because it appears to produce high ROE with limited capital. However, it exposes the banks to big tail risk. This is hard to explain in a short post. At this point WFC has about $1.3 triliion in assets and derivatives exposure outstanding on around $8 trillion. Most of that is simple interest rate swaps and other exposures related to mortages. Counter party risk exists but other risks are hedged. (hopefully) The Universal banks and brokers have much larger exposures and in my view, risk. JPM for example has $2 trillion in assets and over $75 trillion (last time I looked) in derivative exposure. To make matters worse that derivative exposure has accumulated from an assortment of mergers, Bankers Trust, Chemical, Chase, Bank One, Wamu, Bear Stearns, ect. They are in so deep now there is no way to get out. I don't want to see WFC do anything that leads to more derivative exposure.
    Feb 19, 2013. 02:48 PM | 1 Like Like |Link to Comment
  • Wells Fargo: What The Numbers Say [View article]
    Let me start by saying WFC is the best of the large banks, but far from perfect. When they bought Wachovia they pulled out most of the bad loans and put them into the liquidating portfolio. (Biggest part was the pick a pay)This enabled a clean Wachovia loan portfolio, slightly larger than WFC's, to help mask fairly high loan losses from WFC (mostly Norwest Financial). The overall loan losses for the combined WFC, Wachovia seemed good because all the crappy loans from Wachovia were in the liquidating portfolio. The key was to buy Wachovia right which they did. So far the liquidating portfolio is running ahead of projections and so they have released some reserves helping EPS. (This is required by regulators although there's some descretion) Going forward I don't see WFC taking big risks again on home equity lines of credit or auto loans. I'd say a NIM of 4.25-4.5 would be tops. The big question for me is now that Dick K is gone will these guys keep their capital markets business small or will they go full broker like the big multi nationals. There's some indications Stump is open to that. (especially since the traditional bank biz will face much more regulation).
    Feb 16, 2013. 09:05 PM | Likes Like |Link to Comment
  • Wells Fargo: What The Numbers Say [View article]
    jclyac, hope you are correct as I'm long the stock. If you look at the early 2000's you will see that WFC had a NIM that was around 100 bps better than other banks. Looking inside that 40-45% came from a better cost of funds. This should be maintained as their debt is coming down and their store system is well established. However, on the loan side 70% was from traditional bank lending where their interest rates were similar to others. The other 30% came from Norwest Financial. (Dial Finance in the old days) These were on balance higher risk, higher return loans. The Wachovia deal allowed them to cover up larger loan losses from this area by diluting their impact by taking large reserves and doubling the size of the company. Wachovia was a great deal. Now the high risk part of the portfolio is much smaller. Most of the extra 55-60 bps will go away. In the end money is a commodity and will be priced as a commodity from the loan side.
    Feb 15, 2013. 10:05 AM | 1 Like Like |Link to Comment
  • Wells Fargo: What The Numbers Say [View article]
    Generally agree with your comments except the 5% NIM. No chance. That was a function of the "old WFC" before the Wachovia merger. This new configurarion might get back towards 4% plus. Given what happened to banks in 2007-2009 they will never take the type of credit risk that allows for a 5% NIM. They can still have a higher NIM than most banks though because their cost of funds will stay 25-50 bps less than others.
    Feb 14, 2013. 09:24 PM | 1 Like Like |Link to Comment
  • Mario Gabelli: Buy This Stock For A Double [View article]
    I like the fact that they own a million acres in the Marcellus shale. Prior to the recent decline in natural gas prices drilling rights sold for an average of $4500 an acre in the Marcellus. Drilling rights expire, but NFG owns the land so they can wait out low natural gas prices.
    Feb 6, 2013. 08:15 PM | 1 Like Like |Link to Comment
  • How To Evaluate The Dell LBO [View article]
    I think this deal will go through, current shareholders have few other options. One of the things missed by many investors is that Dell isn't really a technology company. INTC,AAPL,QCOM, ect are technology companies. They all spend 15-20% on R&D and are making the guts of new tech products. DELL is a retailer, they assembled and distributed technology in a better way. (at least at the beginning) They spend 2-3% on R&D.
    Feb 6, 2013. 10:15 AM | 1 Like Like |Link to Comment
  • A Win-Win Deal For Struggling Supervalu [View article]
    Not anymore, they sold all the best real estate with this sale to Cerberus.
    Feb 3, 2013. 05:43 PM | 2 Likes Like |Link to Comment
  • How To Evaluate The Dell LBO [View article]
    I don't get your numbers. There are 1.765 billion shares outstanding and Michael Dell owns 285 million. Roughly another 20 million in options in the money. Let's say he/they pay $16 a share, possible but generous. You need about $23.5-24 billion to pull it off. (1.46 billion shares by $16. This assumes Michael Dell leads the buyout and keeps his share). A $15 billion loan package has been all over the news, that still leaves $9 billion. Say you use $6 billion of overseas Dell cash, that will net you $5 billion tops after tax. If you can pull $3 billion combined from Microsoft and Silver Lake and Mike Dell puts in a billion you can pull it off. Lots of if's in there. $16 is a top, top price. Probably more like $15.
    Feb 2, 2013. 10:57 AM | Likes Like |Link to Comment
  • Why Is Dell Still At Only $13? [View article]
    I get your point lonely but bottom line is their major business is suffering (PC's) and they have not proven they can compete in other, newly acquired, business units. As for cash, well their net cash is $4 billion. However, they have $10 billion in cash, almost all of which is overseas and would require large taxes to repatriate. Their $6 billion in debt is mostly here in the US. I think a buyout is a wise move since Michael Dell and partners will be more patient regarding a turnaround and I'm sure he cares about what happens to his employees. Buy the rest of us out and work his turnaround.
    Feb 1, 2013. 10:54 AM | 1 Like Like |Link to Comment
  • What Will The 'New' Supervalu Look Like? [View article]
    Cerberus is in it for a buck as all of us are. Small correction on what Cerberus is doing regarding a purchase in the surviving SVU. They have offered to buy up to 30% of existing shares from current holders at $4 a share. If current shareholders don't tender 30% of the current share count then SVU agrees to issue new shares at $4 a share so Cerberus can buy up to 19.9% of the company. So it's not both, it's one or the other.
    Jan 31, 2013. 05:16 PM | Likes Like |Link to Comment
  • Why Is Dell Still At Only $13? [View article]
    Could it be that the stock has run from $9 to $13 Plus? I read that as a 45% increase in price. It's all about risk/reward George and if this deal falls apart so will the stock since it's now in the hands of speculators playing a buyout. For full disclosure I'm long the stock and expect a buyout offer but Dell IS a troubled company.
    Jan 31, 2013. 05:02 PM | Likes Like |Link to Comment
  • I Love ExxonMobil And You Should Too [View article]
    It's a great company to own long term because they have always had the highest ROIC in the business. Very disciplined.
    Jan 22, 2013. 12:18 PM | Likes Like |Link to Comment
  • What Will The 'New' Supervalu Look Like? [View article]
    I question your math in a few areas. Even if one assumes SVU meets it's debt reduction goal for this year ending in late Febuary 2013 I believe they will have much higher debt levels than you assume. If they meet their goal it implies debt (including leases) of $5.8 billion. This sale involves the assumption of $2.4 billion in debt and $800 million in lease obligations by the new Cerberus firm along with a $100 million cash payment. Seems to me debt will remain near $2.5 billion. And although the new Albertsons will assume some multi employer pension obligations, total pension obligations will still exceed $1.4 billion. (although that's not direct debt) Also, on the call the company indicated the surviving SVU will generate $175 million in free cash flow going forward. Unless there's a further sale of assets I don't see how they can reduce debt by $500 million next year.
    Jan 13, 2013. 10:12 AM | 1 Like Like |Link to Comment
  • Supervalu Is Still A Super Value Even After Cerberus Deal [View article]
    Saibus, curious why you think SVU will be responsible for the $ 140 million bond debt due at Albertsons in May when Wayne Sales indicated on the call that this will close by the end of calender quarter one of 2013.
    Jan 11, 2013. 09:51 AM | Likes Like |Link to Comment
  • Cerberus Thinks Supervalu Is A Super Value [View article]
    This thing is going to be broken up with many of the locations ultimately closed. For that reason it makes more sense for a Cerberus than for a Kroger/Safeway. I still would expect Kroger and other companies to come in for specific locations, perhaps in the mid atlantic area once these initial transactions occur. (Those being Cerberus buying Albertsons and making an investment in SVU and KKR buying Save a Lot)
    Jan 6, 2013. 09:47 AM | Likes Like |Link to Comment
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