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| Symbol | Sector | Return | Exposure | Trades | Last Trade | Status |
|---|---|---|---|---|---|---|
| WFC | Banks | -6.69% | n/a | 5 | 18-Aug-08 | Prior Holding |
13-Nov-07
A steady bank to navigate choppy waters
Holding Rationale for WFC.
Valuation Completed: 11/17/07 Rating: Neutral Comments: They are a well managed bank with a rock solid balance sheet. In today's uncertain market, a strong balance sheet will be needed to survive the credit turmoil. WFC has been able to avoid the toxic loans that have haunted their competitors. While their second lien portfolio is larger than I like, reserves appear adequate and WFC is well above its targeted capital ratios. As a stress test, I assumed that their 1st mortgage portfolio would suffer 2% lifetime losses, 2nd lien mortgage portfolio 9% lifetime losses and credit card portfolio 4.50% lifetime losses. At these loss levels, WFC would be hit with $7.9B of losses versus $2.4B of reserves. I do not think WFC is facing this type of charge, but wanted to be as conservative as possible in determine a fair value estimate. If you use my $5.5B charge-off as a basis, fair value is in line with the current stock price. For every $1B my number is off, the fair value would move $4 per share. With this as a backdrop, you have an investment that is fairly valued for a rocky credit storm. If you believe the credit picture will worsen, initiate a position below $28. If you think the worst has passed, the current price offers a nice entry level. I am going to be conservative, assume the credit picture will get worse and try to open a position below $28.
Tagged Stocks: WFC
Posted at 09:31 in Holding Rationales | Permalink | Comments (0) | Top
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