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The TETELESTAI (It is finished) email which will contain the first 800#'s will be posted first on a private page and will be sent out to everyone subscribed to the private page's feed.

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(Note: The TETELESTAI post is the official "Go" for redemption/exchange.)

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Restored Republic via a GCR: Update as of July 18, 2018

Restored Republic via a GCR: Update as of July 18, 2018 Compiled 18 July 12:01 am EST by Judy Byington, MSW, LCSW, ret. CEO, Child Abuse R...

Friday, January 12, 2018

Wells Fargo Can't Quite Seem to Recover

Wells Fargo Can't Quite Seem to Fix Its Wagon

Gillian Tan
Jan 12, 2018 10:14 AM EST

Waiting for another sign that Wells Fargo & Co. has turned a corner? Its fourth-quarter earnings, released Friday, provided differing levels of validation for investors who had sent the stock flying to a record earlier this week.

For the first time since the GOP tax bill was passed last month, Wells Fargo detailed its impact. The bank essentially confirmed expectations that the new legislation will deliver an earnings boost that should top any other major U.S. bank, in part because of its extremely domestic focus as compared to its more global rivals. Plus, unlike Citigroup Inc. and most other major banks -- which have deferred-tax assets -- Wells Fargo had a deferred-tax liability, which gave it a one-time gain instead of a writeoff.

But looking past the tax-related headlines, the outlook isn't as sanguine. It remains an uphill battle for Chief Executive Officer Tim Sloan, who now answers to a partially refreshed board of directors that includes a new chairman. After a pain-riddled first full year at the helm -- which included massive legal charges tied to its slew of recent scandals -- he may find it tough to keep costs from creeping up while simultaneously seeking to boost growth in key areas such as commercial and consumer loans.

The San Francisco-based bank's non-interest expenses ballooned to a record $58.5 billion in 2017, thanks to a $3.3 billion litigation charge relating to the scandals and a separate $1 billion of legal costs tied to pre-crisis activity. Wells Fargo said it expects non-interest expenses in 2018 of between $53.5 billion and $54.5 billion, which will likely leave it with an efficiency ratio that's once again outside its longtime targeted range of 55 to 59 percent and closer to 60 percent. In other words, for every $1 of revenue, expenses will likely remain elevated at 60 cents.

Put a Lid on It

The lender's expenses remain more bloated than investors anticipated

Source: Bloomberg, company filings

*Between $53.5 billion and $54.5 billion

Expenses can and will be curbed by measures including a shrinking of Wells Fargo's branch network, an ongoing effort that is made possible by consumers leaning more heavily on digital products such as Facebook Messenger and the bank's own mobile app to transact and communicate. The lender shuttered or consolidated 214 branches in 2017 and will pick up the pace, closing another another 850 or so by the end of 2020 (it's targeting a network of roughly 5,000 which is closer in size to the branch count of both JPMorgan Chase & Co. and Bank of America Corp.).

Perhaps commendably, the bank isn't taking an easy route to slashing expenses. Instead, it's prioritizing other stakeholders by raising minimum hourly pay to $15 (at the lower end of a previously outlined minimum wage range of $13.50 to $17 a year ago, before any changes to the tax rate).

Wells Fargo is also channeling a portion of its future tax benefits into a targeted $400 million in philanthropic donations in 2018 (a 40 percent bump from 2017), well above the current efforts of larger rivals JPMorgan and Bank of America.That figure should climb in coming years, with Wells Fargo aiming to dedicate 2 percent of after-tax profits toward corporate philanthropy in 2019 and beyond. While that is far from the entirety of its newfound tax savings, it's better than nothing and limits the political and other scrutiny that may have arisen if the bank funneled its entire tax savings toward shareholder-enriching maneuvers such as dividends and stock buybacks.

Still, it remains worrisome that Wells Fargo's earnings growth is primarily being driven by the tax-law changes, share buybacks and minimizing expenses where it can. Its net interest margin, a closely watched metric of how much profit the bank can generate from its loans, remains wanting.

Catch Up

Wells Fargo's fourth-quarter net interest margin fell slightly to 2.84 percent. It should get closer to the industry average as excess liquidity is invested at higher rates, among other measures.

Source: Bloomberg Intelligence

And it's too early to know if revenue growth will be propelled by loan growth, which has been anemic:

Not Yet

Banks like Wells Fargo will benefit if recent policy clarification, such as around tax reform, spurs borrowing levels back toward where they were before the election

Source: Bloomberg Intelligence, Federal Reserve

To be sure, the lender's shares have rallied almost 40 percent since the November 2016 election, albeit outpaced by the KBW Bank Index's 50 percent rise. So a tax-driven expected earnings boost is largely factored into its near-record high, along with prospects of generous future payouts. Still, it's trading at a multiple of 2 times its tangible book value, despite delivering full-year return on assets of 1.15 percent and return on equity of 11.35 percent (both at the lower-end of the bank's targeted range).

The fact that its valuation trails JPMorgan's despite the Jamie Dimon-led bank's weaker profitability metrics, suggests Wells Fargo's recovery isn't fully baked in just yet.

Regardless, from here on out, investors should take a breather until they see fresh indications that the bank's earnings will climb of their own accord.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To be sure, neither have announced plans yet but JPMorgan said Friday that it's "planning a broad set of strategic and sustainable benefits for our employees, customers and communities".

Source: Bloomberg



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