CNBC reports:
Regulators told Wells Fargo to shore up its finances after government “stress tests” showed the bank would have trouble surviving a deeper recession.
Wells Fargo is one of several banks that regulators will force to hold larger buffers to protect them against possible future losses, according to two people familiar with the matter who spoke on condition of anonymity because of the sensitivity of the process.
Which does not quite square with reports that at the annual meeting of Berkshire Hathaway shareholders over the weekend Warren Buffett sang Wells Fargo’s praises.
MoneyWeb reporter Alec Hogg notes that Buffett mentioned Wells “about a dozen times during the seven hours I listened to him answering questions. On each occasion the reference was favourable.”
More from MoneyWeb (emphasis ours):
Part of [Buffett's] zeal comes from an understanding that not all banking companies are the same. He says most investors don’t take this into account when pricing banking stocks. As a result, a superior financial business like Wells Fargo can mistakenly be assessed on bald numbers and treated like a shaky one, such as Citigroup
Buffett twice illustrated the point by using the example of two copper mines – one producing at $1 a pound; another at $1.60. Investors find it easy to understand that at copper price of $1.30 the one producer will still do fine while the second one will be in deep trouble. But Buffett says similarly stark differences between banking groups are usually ignored.
For instance, he explained, Wells Fargo runs two mortgage books: one where the home loans were written by its own staff; the other where they were originated through brokers (the central characters behind the subprime disaster). Wells’ own book, he added, has one quarter the bad debts of the other. Yet most investors would ignore this and simply lump both together when analyzing the numbers.
And how’s this for a ringing endorsement:
Buffett says during the height of the market meltdown he was asked by a group of students what to invest in: “It happened to be the day when Wells Fargo’s price dipped below $9 a share. I told them that if I had to put all my net worth into a single share that day, it would be Wells Fargo.”
Stress tests be damned.
Related links:
The Sage of Omaha loses some of his sheen – FT Alphaville
Stress test results: who is leaking? – Bronte Capital