Plug From Barton’s . Writer must own lots of WF shares at @58/share. 👇🏻👇🏻👇🏻😄
We Need More Strong Banks. Let Wells Fargo Grow. -- Barrons.com
Mentioned: WFC
By Kurt Feuerman
About the author: Kurt Feuerman is chief investment officer, select equity, at Alliance Bernstein. The views in this commentary are his personal views, and do not reflect Alliance Bernstein's firmwide view. Alliance Bernstein holds Wells Fargo stock on behalf of its clients.
When First Republic Bank failed, regulators made a quick decision to allow JPMorgan Chase to acquire the regional lender's assets. That decision went ahead even though JPMorgan already held more than the legal limit of 10% of insured U.S. deposits. This deal was exactly what the industry and the country needed because it reduced losses needed to be absorbed by the Federal Deposit Insurance Corp. and worked toward restoring confidence in our banking system.
Still, the calm seems to have been short lived. The equity values of regional banks have been crushed. Bank deposits are shrinking at the fastest pace in decades. This is a shame because most regional banks are strong, well-managed institutions that are a vital part of the U.S. economy. There have been calls for more regulatory action, including temporarily banning short selling and increasing the FDIC insurance limit.
Regulators should consider another action that would be simple and helpful: remove Wells Fargo's asset cap. The Federal Reserve put a $2 trillion limit on Wells Fargo's deposits in 2018 following the fake-accounts scandal and other issues. The cap has been on for over five years. New management has done everything asked and is steering the bank beautifully through the current turbulence. It is not in the best interests of the country to have JPMorgan be the buyer if another bank fails. We want other strong banks to be ready.
Besides JPMorgan, it is reported that Bank of America, PNC, U.S. Bancorp, and Fifth Third were invited to bid for First Republic. Bank of America is also above the 10% deposit limit. Unlike JPMorgan, Bank of America has large unrealized bond losses relative to its capital base. Wells Fargo is well below the 10% deposit threshold and is closer to JPMorgan as it relates to unrealized bond losses. And its capital base is far stronger than those of PNC and U.S. Bancorp. In short, Wells Fargo managed through this difficult period better than many banks, is below the 10% deposit cap and is extremely well capitalized, so the bank is an ideal candidate to work as a shock absorber should more regional banks falter.
Many observers believe the Wells Fargo asset cap will be removed over the next six to 18 months. But we need the help of our strongest banks now. Let's look at some of the actions Wells Fargo has taken since the asset cap was enacted in February 2018.
- All new management was put in place, led by highly respected CEO Charles Scharf.
- New incentive structures and risk protocols were implemented.
- A total of over $3 billion in fines and consumer compensation have been paid.
Wells Fargo employs over 200,000 Americans and paid federal income tax of over $1.5 billion in 2022. It is a great company that has provided restitution for the mistakes of the prior management team. Give Wells Fargo the freedom to help the American banking system weather this storm.
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