Transcript
Wells Fargo (NYSE: WFC)Jonathan Ketterer
Recession
Profitability
Company Name Total Assets MRQ ($000)ROAA
LTM (%)ROAE
LTM (%)
Net Interest Margin
LTM (%)
Efficiency Ratio
LTM (%)
Noninterest Inc/
Operating Rev
LTM (%)Citigroup Inc. 1,880,617,000 0.75 7.11 2.93 64.46 37.84
Bank of America Corp. 2,102,273,000 0.53 4.89 2.46 80.98 50.15
JPMorgan Chase & Co. 2,415,689,000 0.75 8.64 2.23 74.50 53.59
U.S. Bancorp 364,021,000 1.63 13.88 3.44 51.30 45.25
PNC Financial Services Group 320,296,000 1.38 9.98 3.57 60.61 41.74
BB&T Corp. 182,341,000 0.96 7.90 3.68 58.54 40.70
Fifth Third Bancorp 130,443,000 1.48 12.73 3.32 62.77 43.03
Minimum 0.53 4.89 2.23 51.30 37.84
Median 0.96 8.64 3.32 62.77 43.03
Average 1.07 9.30 3.09 64.74 44.61
Maximum 1.63 13.88 3.68 80.98 53.59
Wells Fargo & Co. 1,527,015,000 1.53 13.47 3.39 58.03 48.02
Revenue Diversification as of 4Q13
Geographic Reach
Regulatory Risks Basel I Tier 1 Common equity ratio:
10.82% Basel III Advanced Approach: 9.78%
(March 2018, 10.5%)
Economic Moat Narrow, due to money’s commodity-like
nature Leads Big 4 Banks in Efficiency Ratio @
58.5% Sticky Customer Base
U.S. Deposit Market Share as of 6/30/2013
US
2013 Rank
2012 Rank Institution (ST)
2013 Total
Deposits ($000)
2013 Total
Market
Share
(%)
2012 Total
Deposits in
Market
($000)
2012 Total
Market
Share
(%)1 1 Bank of America Corp. (NC) 1,012,454,914 12.00 1,008,229,328 12.502 2 Wells Fargo & Co. (CA) 937,241,847 11.11 861,957,613 10.693 3 JPMorgan Chase & Co. (NY) 916,568,626 10.87 832,480,563 10.324 4 Citigroup Inc. (NY) 444,913,722 5.28 393,498,779 4.885 5 U.S. Bancorp (MN) 241,338,523 2.86 226,159,281 2.806 6 PNC Financial Services Group (PA) 209,784,952 2.49 203,375,163 2.527 7 Capital One Financial Corp. (VA) 188,044,482 2.23 189,268,466 2.358 8 Toronto-Dominion Bank 178,319,573 2.11 159,329,492 1.989 9 BB&T Corp. (NC) 138,497,550 1.64 137,109,124 1.7010 11 Bank of New York Mellon Corp. (NY) 133,066,017 1.58 127,972,134 1.59
Credit Quality
Company NameNCOs/ Avg
Loans LTM (%)Citigroup Inc. 1.58Bank of America Corp. 0.84JPMorgan Chase & Co. 0.80U.S. Bancorp 0.64PNC Financial Services Group 0.56BB&T Corp. 0.67Fifth Third Bancorp 0.56Minimum 0.56
Median 0.67Average 0.81Maximum 1.58
Wells Fargo & Co. 0.54
Balance Sheet
Company Name
Tangible Equity/
Tangible Assets
2013Q4 (%)Loans/ Assets
2013Q4 (%)
Loans/ Deposits
2013Q4 (%)
Prelim Basel III T1 Common
Ratio 2013Q4 (%)
NPAs/ Assets 2013Q4 (%)
NCOs/ Avg Loans 2013Q4
(%)Citigroup Inc. - 35.45 68.96 10.50 1.44 1.52
Bank of America Corp. - 44.33 82.93 9.96 1.76 0.67
JPMorgan Chase & Co. 6.83 30.36 56.39 9.50 0.91 0.73
U.S. Bancorp 8.97 64.33 89.13 8.80 1.34 0.54
PNC Financial Services Group 11.09 61.09 88.54 9.40 1.46 0.38
BB&T Corp. 8.82 63.64 90.93 9.60 1.29 0.49
Fifth Third Bancorp 9.52 67.83 89.26 8.99 2.62 0.67
Minimum 6.83 30.36 56.39 8.80 0.91 0.38
Median 8.97 61.09 88.54 9.50 1.34 0.67
Average 9.05 52.43 80.88 9.54 1.52 0.71
Maximum 11.09 67.83 90.93 10.50 2.62 1.52
Wells Fargo & Co. 9.34 54.67 76.52 9.78 2.26* 0.46
ManagementJohn G. Stumpf - 31 years with the Company or its predecessors Chairman, President & CEO (President & CEO 2007-Pres)
Timothy J. Sloan - 25 years Senior EVP & CFO
Avid Modjtabai - 19 years Senior EVP, Consumer Lending
David Allen Hoyt - 31 years Senior EVP, Wholesale BankingDavid M. Carroll - 31 years (from Wachovia) Senior EVP of Wealth, Brokerage & Retirement ServicesCarrie L. Tolstedt - 23 years Senior EVP, Community Banking
Valuation
Company NamePrice/ Book
(%)
Price/ Tangible Book
(%)Citigroup Inc. 73.9 -
Bank of America Corp. 78.7 -
JPMorgan Chase & Co. 108.2 143.8
U.S. Bancorp 202.5 279.9
PNC Financial Services Group 111.2 148.4
BB&T Corp. 130.5 205.9
Fifth Third Bancorp 135.3 164.9
Minimum 73.9 143.8
Median 111.2 164.9
Average 120.0 188.6
Maximum 202.5 279.9
Wells Fargo & Co. 154.7 193.9
Margin of Safety Current Price: $46.08 Target Price: $52.92 Margin of Safety: 15% Projected only 6 years with SNL Bank
Valuation Model
Company Wells Fargo & Co.
Years 6
Discount Rate 11.72 %
Terminal Value Multiple P/E 13.00 x
Projected Value of Firm ($000) 278,222,279
Projected Per Share Value of Firm ($) 52.92
Sensitivity Analysis
Projected Firm Value Sensitivity Analysis ($000)
Terminal Value Multiple Discount Rate
9.72% 10.72% 11.72% 12.72% 13.72%
11.00x 51.41 48.99 46.70 44.55 42.52
12.00x 54.88 52.27 49.81 47.50 45.32
13.00x 58.34 55.55 52.92 50.44 48.11
14.00x 61.81 58.83 56.03 53.39 50.91
15.00x 65.27 62.11 59.14 56.34 53.70
Recommendation Replace F5 Networks with Wells Fargo
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