During the 2008 financial crisis, Wells Fargo's stock price experienced significant fluctuations:
- 52-Week High: Approximately $38.90 per share.
- 52-Week Low: Approximately $7.80 per share.
Charlie Munger, serving as chairman of the Daily Journal Corporation, made a strategic investment in Wells Fargo during this tumultuous period:
- Investment Amount: Approximately $20 million, sourced from Treasury bonds.
- Acquisition Price: Shares were purchased at around $7 per share, totaling just under 1.6 million shares.
This bold move reflected Munger's confidence in Wells Fargo's resilience and long-term prospects.
Two Years Later:
By 2010, Wells Fargo's stock price had rebounded significantly:
- Stock Price: Approximately $30 per share, marking a substantial recovery from the lows experienced during the crisis.
This period underscored Munger's investment acumen and belief in the enduring value of well-managed financial institutions.
Wells Fargo & Co (WFC) PB Value Chart - WFC Stock PB Value History
In feb 2009 its valuation dropped to 0.82 and in Mar 2009 it was trading at 1.44 time PBV. 2006 high was 2.8.
# Wells Fargo maintained a stockholders' equity to assets ratio of 8.28% in 2007
Net Profits
-
2007:
- Net Income: Approximately $8.06 billion.
-
2008:
- Net Income: Approximately $2.66 billion, a significant decrease attributed to the financial crisis and the acquisition of Wachovia.
-
2009:
- Net Income: Approximately $12.28 billion, indicating a strong recovery post-crisis.
Market Capitalization
-
2007:
- Approximately $101.27 billion as of December 31, 2007.
-
2008:
- Approximately $98.03 billion as of December 31, 2008.
-
2009:
- Approximately $126.45 billion as of December 31, 2009.
During the 2008 financial crisis, Wells Fargo was caught in a storm of problems, some real and some rumored. Here are some of the biggest concerns investors had at that time:
1. Exposure to Subprime Mortgages
- While Wells Fargo was seen as more conservative than other banks, it still had exposure to the collapsing subprime mortgage market.
- Investors feared massive loan defaults and potential write-downs on its mortgage portfolio.
2. Wachovia Acquisition Risks (2008)
- Wells Fargo acquired Wachovia Bank in late 2008, which had a huge portfolio of risky "Pick-a-Pay" mortgages (loans that allowed borrowers to skip payments).
- There were concerns that these bad loans could drag Wells Fargo down and result in major losses.
3. Liquidity and Capital Adequacy Concerns
- As the crisis unfolded, many feared that Wells Fargo did not have enough capital to survive the downturn.
- Investors worried it might need a government bailout or be forced to raise capital at distressed prices.
4. Dividend Cut and Stock Dilution
- Wells Fargo was known for its steady dividends, but in March 2009, it was forced to cut its dividend by 85% (from $0.34 to $0.05 per share).
- The bank also raised capital through a stock issuance, diluting existing shareholders.
5. General Banking Sector Panic
- Lehman Brothers collapsed, and other major banks like Citigroup and Bank of America were struggling.
- Investors feared systemic risk, meaning that even relatively strong banks like Wells Fargo could be pulled under.
Market Sentiment at the Time
- Warren Buffett and Charlie Munger saw past the panic, realizing that Wells Fargo was not as reckless as other banks.
- When the stock collapsed to around $7-$9 per share, Munger bet heavily on its long-term survival.
No comments:
Post a Comment