Analysis and Discussion with Fred Cannon of Keefe Bruyette & Woods

Transcript:
billionaire nvestor arren buffett always on the ookout for argains, revealed e lit raised his take n companies like raft, ellpoint, and wells fargo. hat eft the cats re let ext guest' s a little bit puzzled. or those ho follow warren ffett' very a messman ick, it may seem a little far- fetched. e have a nalyst in san francisco. red, i thank you for joining us. it is hard these days against warren buffett but ou e made a bad hoice dding on to wells fargo. hy do you say that? ertainly i am not one to isagree with mr. warren buffett s long erm returned or focus uality companies uch as wells fargo. owever, n the ast urrent ricing nd financial ervices, we see wells argo ompany that has retained very high ultiple elative to the est of roup. in our view, omething we think ill come under ressure n the next three months ix months. hink erhaps e will ave an opportunity to uy ore nd even a lower price in the next three months to six onths. or keeping the price will go? t is 29.11 enault. e have a price target of $20. id nothing ill fargo s a ock the we have been nder he kind of ressure ike ashington mutual or hat happened to countrywide y any means. ut in our iew, wells argo eavily xposed in areas where ill see ignificant redit sses over the ext two ears, and reserve levels are simply too low for those kind of costs. hey come p, arnings come own, and we elieve the tock will be under some ressure over the ext six months year. >> why don' t you hink it will be the ext ashington utual countrywide? hat do you know about this is different? ught to be of things that it has. umber ne, they have a trong capital ase. umber wo, and erhaps ost mportant, ells argo does ave iverse approach to its earnings. d number of business ines but will ontinue to do pretty ell in this environment. s a esult, they will continue even hough they have to ring p their redit oss eserves. hink they ill ble to bring pretty ood re credit cost arnings that ill et through his rather han the need of ashington utual for significant apital build p and earnings even efore credit osts re under ome ressure. et it is xposed o one the worst ousing arkets, california. >> you bet. 0 percent f wells argo' loans are in home quity onstruction, ith a lot residential construction. have een and values and ome arts n south est own 70 percent or 0%, and we hink will ake in -- take a oll at have an effect n wells fargo tock. he bank set side 2 billion first quarter for potential losses. o you think hat that is enough? f you ust look eserved to loans going specially in the est, eing a eaningful economic ownturn, wells fargo s a ittle bit ver 50 basis oints eserves to loans. hat is nderneath year' charge f the current ates and derneath he non-performing loan evels, and mportantly, bout 100 basis points elow where they were oing nto ast ecession at the end f 2000. elieve that imply too ith he lost continent we see in that type of ortfolio wells argo owns. o you ive something n the pside for wells fargo? hat s it? ight ow he down ide, $22. ce it its the local where do you hink it could have? gain, this s one he most interesting hing ith vague -- bank tocks, e do not hink there are big pportunities and stronger mpany ike wells argo coming out of a redit ound him. n other ords, when we inally get hrough he credit ycle see the other end - and we do not believe we re there yet hink some of he companies that have taken the iggest it in stock rices may be the nes you get the iggest eturns, ot the ones that eally have yet to fall. know i am umping the un hat one. hank you so much for oining us. fred annon, bw nalyst.