Friday, February 6, 2009

Wells Fargo Needs To Raise Cash....NOW!

Wells Fargo (WFC)- is up nicely today on market rumors that the Obama Stimulas plan will be approved early next week. Wait, didn't the stock rally ahead of TARP approval only to drop 50% the next few months? The stock is only up today as there are no short sellers pressing their bets. Let the longs enjoy a day or two.

But the facts speak for themselves.

Wells Fargo currently is bogged down with a minuscule 2.68% tangible common equity to tangible asset ratio way below the 4% big bank average. They would need to raise at least $30 Billion to get back to par. The current market cap is $79 Billion.

Wells Fargo is currently the most expensive big bank in the U.S. Why is this bank trading way above its book value??? Investors for years gave this institution the benefit of the doubt for the following reasons:

1- Berkshire Hathaway (Warren Buffet) owns a considerable stake.
2- Conservative Management
3- Better Credit Quality

This was before their horrible buy of Wachovia.
Mortgage losses will approach $55-60 Billion for the combined entity, analysts have only modelled $25 Billion, and Wells has modeled less then that.

The dividend needs to be eliminated, when they do this...the stock will rally huge.

As I mentioned earlier they need to raise at least $30 Billion which will be dilutive.

This stock should trade at roughly 1/2 its book value, what ever that is after they do their stock offering.

Wells should take a page from State Street, and come clean.




No comments:

Post a Comment