http://groupanlz.blogspot.com/2010/01/equity-call-for-new-year-wfc-11809.html





Equity Call for the New Year: WFC 1.18.09






Hello Ladies and Gents,

Back
in the states and ready for the new year! Apologize for the long period
with no publications, but fear not our team is back with a burning
motivation like no other.

Though my equity performance is not so
hot, I will start out by making a call on WFC (Wells Fargo). Knowing
about WFC's management and company culture should be enough reason to
short the company at these levels. Though the bad news doesn't end at
the latter two points.

Management Issues:

I
haven't had time to break down their statements but its clear that
their poor retail practices and super tight loaning standards are
certainly not in their favor. Considering the nature of Wells Fargo's
business I'm sure these management practices filter through to their
other commercial and corporate banking arms.

Listening to the
front line retail solider at local branches (sales personnel) I learn
of a great disparity between high level management and local level
management along with retail employees. There is poor communication of
the wants of management and and the feasibility of these wants that
must be carried out by the sales staff (akin to typical state planner
wants and production possibility feasibility problem found in Soviet
and Indian economic history). Much of this reminds me of asymmetric
literature on financial crises (Particularly Miskin's work on using the
asymmetric model across historical financial crises). It would appear
that the WFC banking model hasn't improved much since the crises; and
perhaps this holds true for other retailers as well.


The above paragraphs outline the management issues. Which does not even begin to discuss the fundamental problems.

Some Fundamental Issues:

At
the height of the crises Wachovia bought into lots of bad paper. From
what I know (though I am not to familiar) there have been at least 52
billion dollars of write downs from these poor investments. One can be
sure that there should be more write downs to come, or at least the
downside risk remains high.

Though low quality commercial
paper seems to have stabilized, the fact is that it still remains
fundamentally poor. Though I will note as long as people hold faith in
the Fed this risk factor maybe minimal.



All in all I will call a short at these levels; current close 28.08.




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Alexander Lê
Managing Partner
Analyze Capital LLC
email: le.alex48@gmail.com