Accoring to the NY Times article it appears that the $34 billion the gov is requiring for BAC is as a substitute for the $45 billion in TARP money it already has. The whole TCE ratio is BS. It is really party of a policy goal perpetrated by the government to over capitalize banks so that banks will have the capacity to make new loans in a recovery.
Thus, if the gov says that Wells needs to raise $15 billion, this $15 billion can be used to pay off the TARP money in the future. Wells will not need to raise any additional money or use earnings to repay TARP. Thus, the capital raise will be really no different than what the Chairman said in the fall when WFC had planned to raise capital privately to pay for the Wachovia acquisition before TARP.
Once the market understands this, the stock will continue to rise.
What then is the purpose of TARP? TARP was designed to ma
I'm fairly sure it does, based on the previous posts I've read on the Berkshire board on fool.com. There are quite a number of well informed bloggers over there who suggest so, but do your own due diligence, because I am not sure on this point. Even if Warren doesn't step up, I'm sure other sources of private equity will jump on this, after WEB's solid endorsement of WFC the other day.
What are you talking about, do you not understand how much these banks are up to their ears in bad loans and derivatives. Remember who owns the newspapers, yes wall street and they are told to fudge numbers. Wall St. owns pretty well all the big newspapers, go behind these reports and find out what is really going on.
All banks have credit losses. Every single quarter of every single year. If you really have read the 10-Ks and Qs I'd like to know what it is that you see if going to cause an actual losing year for WFC. They haven't had one yet. They've had one losing quarter throughout all of this and that was during the worst quarter for the credit markets in probably 50 years.
So look at table 1 in the most recent annual report. You'll see revenues growing from $28B in 2003 to $40B billion last year. You'll see non interest expenses ranging from $17B to $22B. And you'll see credit losses growing from $1.7B to $16B. This leave net income growing from $6B in 2003 to $8B and then falling to $2.7B last year. All profits.
So what happened last year and is it likely to get worse causing a loss? It seems unlikely. The provision for credit losses look like this (in millions)
And what does Q1 of 2009 look like?
$21 billion in revenue
$9.2 billion in pre-provision income.
$4 billion in credit loss provisions.
So before the Wachovia purchase the credit losses were running less than $3 billion a quarter. The awful 4th quarter was probably a combination of kitchen-sinking the provisions plus an awful banking/credit environment. Now with both Wachovia and wells Fargo on the books the provision for credit losses is around $4b but that is against a lot more pre-provision income than existed before. Wells has provisioned for 1 years worth of residential and 2 years worth of commercial. They are in good shape as witnessed by the recent record quarter.
To be continued ...
Nevertheless, I feel a panic sell tomorrow. The finding on BAC is really a big blow to traders or investors on the long side after hearing many of the upbeat news and pushing the market to this level.
I feel Warren buffet is just acting in the administration's preference. He should have know the result won't be good. But his huge exposure in the equity market dictated that the only side he can pick is long. Adding that he bear responsibility to the government to some level (at least I feel so)
We as general investor shouldn't go against market sentiment and we need to pick the right side as condition changes.
Panic sell of? Not happening.
These stocks are starting to trade on there ability to generate earnings. This isn't going to be a sector wide panic sell of that you predict.
Dont really care about BAC... Wells on the other hand is arguably the best run bank in the sector and arguably in the best financial position