Reuters has a delightful story today about Wells Fargo’s merchant banking business, Norwest Equity Partners, which owns among other things the quite horribly named rifle maker Savage Sports. I can’t get too worked up about the likelihood that a fifty-year-old, smallish ($3.7bn), carefully managed, moderately gun-toting, otherwise wholesome private equity business will bring down the global financial system, but then I’m not Sheila Bair:
“Is that really what you want institutions that have safety net support doing? Is that an appropriate use for a government backstop?” she told Reuters.
I dunno, Sheila. Who is “you”? What do you want institutions doing? Something, right?
The point of the Reuters story is mainly that the Volcker Rule is expected to limit banks’ ability to invest in private equity funds, but that Norwest’s business is likely to be exempt because it runs only Wells’ own money. If you put bank money in a separate PE fund with outside investors it’s caught up in the Volcker Rule, but if you just make private-equity-type investments on your own it is not. This is no way to run a railroad: Read more »
Bank earnings season kicked off today with Wells Fargo’s announcement, and since I have nothing really to say about Wells Fargo earnings I figured the least I could do was put up some charts instead. Not on earnings – they’re up! net interest margin is down! on balance, gnash your teeth a little! – but on what Wells Fargo is doing with all the money it’s got.
This seems like a popular question to ponder, since it’s got rather a lot of money. So today brings the Journal‘s vividly headlined “Wads of Cash Squeeze Bank Margins”, and earlier we had Frank Partnoy and Jesse Eisinger’s attempt to find out where Wells is hiding all its fraud. The main thing is:
- Banks have lots of deposits because everybody’s scared of everything so they put their money in the bank.1
- Banks aren’t making lots of loans for some reason, with the reason ranging from “banks are a bunch of scumbags” to “you’re all a bunch of deadbeats.”
- So they have money left over.
- So they put it somewhere.
A natural question is “where is the somewhere?” and here is where Wells puts it:
That’s just various bits as a percentage of total deposits. You can see loans have decreased as a percentage of deposits since the crisis; other risky-type assets – trading assets and available-for-sale corporate and mortgage bonds, etc. – have increased a bit but not enough to make up for that drop: Read more »
Richard Eggers knows what we’re talking about. Read more »
Don’t do this:
One particular municipal entity had been a customer of Wells Fargo, or a predecessor, since at least 1988. This customer’s investment objectives were safety of principal and income. … Wells Fargo’s internal records for the customer’s account specifically stated that the account should not invest in MBS. In addition, applicable state law prohibited municipal entities such as this customer from investing in certain “high-risk mortgage-backed securities.”
Respondent McMurtry nevertheless selected and purchased for this municipal customer a SIV-issued asset-backed commercial paper program which was backed by MBS and related high-risk mortgage-backed derivatives. … On April 30, 2007, McMurtry selected and purchased Golden Key on behalf of the customer. McMurtry did not know what a SIV was at that time he selected Golden Key for his customer. Further, he did not read the PPM for Golden Key, nor did he inform the customer of the risks related to the SIV structure or the underlying high-risk mortgage-backed assets held by Golden Key.
Well, I mean, in his defense it seems that McMurtry had a very good excuse for not informing the customer of the risks of Golden Key, specifically that that he didn’t know what those risks were, or what Golden Key was, or presumably where he was or how he got there or how many fingers the customer was holding up.
The world is safe from Shawn McMurtry for the next six months, since he and his employer entered into a settlement with the SEC today suspending him and fining Wells $6.5 million for its unconcern with the fact that its salesmen were not particularly interested in doing their jobs and/or illiterate: Read more »
The news these days is full of stories about swaps gone awry, where “awry” means “down in value for people who bet on rates going up, because rates went down.” Oakland and Libor, yes, but there’s a fun one in Floyd Norris’s column last week about this horror:
The security had a mouthful of a name: Floating Rate Structured Repackaged Asset-Backed Trust Securities Certificates, Series 2005-2. It was created and sold in 2005 by Wachovia Securities, then part of Wachovia Bank, which was renamed Wells Fargo Advisors after Wells Fargo acquired Wachovia. The bank called the securities Strats, a quasi-acronym.*
Basically the Strats were made by the following formula:
- take $25 worth of JPMorgan 5.85% trust preferred securities maturing in 2035,
- replace the 5.85% coupon with a floating coupon of 3-month Treasuries + 100bps,
- cap that floating coupon at 8% and floor it at 3%,
- sell the resulting thing for $25,
- hope for the best.
If you bought this thing – and, serious question, why would you buy this thing?** – the best didn’t happen. The worst happened, or nearly: the worst you could do, outside of default, would be to get a 3% coupon for 30 years, instead of the 5.85% coupon that you’d get by just buying the JPMorgan TRUPS directly like a human.*** And with the 30-year treasury in the 2.6%-2.7% area, that’s more or less what a Strat holder had to look forward to as of a month or two ago. Read more »
Numbers for first, second, and third year analysts. Read more »
Dick Bové: Wells Fargo Is Managed Great If You Don’t Take Into Account The Horrible Customer Service I’ve Received On Several Occasions, For Which Heads Should RollBy Bess Levin
Picture this. You’re world-renown bank analyst Dick Bové, famous for, among other things, issuing a report in summer 2008 about which banks were “next” to fail, not rolling over and taking it when Citigroup tried to screw you good, and standing by Ken Lewis when literally no one else (including his board) would. When you walk into rooms, people notice. More often than not, they ask you to pose for pictures, kiss their babies, sign their tits. Some have fainted in your presence. You’re the fifth Beatle, Justin Bieber, and George Clooney, all wrapped into one devastating little package. It should go without saying that an appearance by you at your local branch bank, to cash six-figure checks, as you often do, would be call for a red carpet and the crème de la crème of customer service, right? Apparently wrong. Read more »
Occupy protesters, taking aim at what they dubbed Wall Street West, were arrested after converging on Wells Fargo & Co.’s headquarters in San Francisco today in a bid to shut down the city’s Financial District. Demonstrators shouting “Give Us Our Money Back” and saying they wanted the bank to stop foreclosures chained themselves to entrances of the bank. Seven people were arrested, according to police Lieutenant Liam Frost. The arrests were made at the request of a Wells Fargo representative, Frost said. [BW, related]
As you may have heard, Wells Fargo has been doing pretty well for itself lately and in last quarter in particular, when it beat expectations with a $4.1 billion profit. Others? Not so much. Not bad for ole WFC, who other banks (no names- Citi, JPMorgan, Bank of America) have thought they were better than all these years, and who Vikram once said would top league tables “when the New York Fed gets par for the Maiden Lane portfolio,” is it? Not that it’s a big deal to anyone out west. Read more »