By William Davis


“A billion here, a billion there, pretty soon, you’re talking real money.”

We were reminded of the famous quote – long mis-attributed to Everett Dirksen – with yet another story about Wells Fargo and a ridiculously large regulatory fine, a cool billion dollars this time. Best we can tell, this the sixth or seventh or fiftieth big hit to the company’s exasperated shareholders since the bank’s disreputable story began unfolding two years ago. Naturally, Wells Fargo & Co. shares rose 2% on the news, the best performance among large U.S. banks.

  • April 2016: Wells Fargo settles with Justice Department for $1.2 billion related to improper mortgage-lending practices.

This latest mess — a settlement with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency — centered on the bank’s Machiavellian practice of forcing unnecessary insurance coverage on auto-loan customers. According to regulators, all of whom missed the goings-on while they were going on, ham-handed lenders required some 2 million borrowers to purchase insurance covering vehicle damage even when customers already had adequate coverage. Rising loans and deposits, meanwhile, allow Wells Fargo to generate higher revenue.

  • September 2016: Wells Fargo settled with the CFPB, OCC, and Los Angeles City Attorney for $185 million related to its obnoxious retail-banking sales practices.

Friday’s announcement follows the Fed’s unprecedented enforcement action last month against what used to be one of San Francisco’s finest institutions. For reasons known only to our central bank’s most significant bureaucrats, WFC was barred from growing past the $1.95 trillion in assets it had at the end of 2017. The Fed’s pencil pushers cited “widespread consumer abuses” in its odd rebuke. Still, Wells remains the nation’s third-largest U.S. bank by assets and the largest mortgage originator.

  • April 2017: WFC agreed to pay $142 million to refund customers, attorneys’ fees, and other settlement fund claims relating to sales-practices problems.

Despite the disturbing pattern of these scandals, WFC stock remains the largest holding in the portfolio of Warren Buffett’s Berkshire Hathaway Inc. As of its last filing, the most legendary investor of all time holds over 458 million shares of Wells Fargo stock, or about 9.3% of his company’s total holdings. Why? Perhaps he has simply stuck to the bank’s fundamentals, which perversely enough aren’t that awful. More likely, though, the “Oracle of Omaha” may have no choice but to stick with the disgraced company since selling his massive position could create greater problems than sticking with it. In the meantime, after a $1 billion smackdown, WFC revises its first-quarter profit downward by $800 million. It all sounds like a big mistake.

What the equity markets have been doing…

INDEX Friday’s Close Two-Week Point Change Year-to-Date Change
DJIA 24,462.94 +530.18 -(1.04)%
S&P 500 2,670.14 +65.68 -(0.13)%
NASDAQ 7,146.13 +231.02 +3.52%
Russell 2000 1,563.98 +48.65 +1.85%

What the fixed income markets have been doing…

FIXED INCOME Period Change YTD 12 Months Yield
U.S. Treasuries +0.2% -(2.2)% -(1.5)% 3.0%
U.S. Investment Grade +0.1% -(3.2)% +0.7% 3.9%
U.S. High Yield -(0.2)% +0.2% +4.4% 6.1%
U.S. Municipals +0.1% -(1.2)% +1.4% 2.8%
Non-U.S. Developed +0.1% +2.7% +9.0% 0.9%

What curmudgeonly money managers who’ve beaten the stock market by a wide margin over the last 20 years have said…

“Graham and Dodd don’t say what everybody says they say. For one thing, they knew zippo about credit analysis.”

“Spending a lot of time on macro factors, whether for the overall economy or for securities markets, is not only a waste of time but also a refuge for articulate incompetents who are untrained in any aspect of corporate analysis but can sound intelligent by making predictions about things that are unpredictable.”

“One of the things about buy-and-hold value investing is that it is not labor intensive. It is not stressful, unlike most things on Wall Street. Just look of the number of value guys who have survived to over 100.”

  • Marty Whitman, who built a storied career and a venerated fund firm based on his own style of value investing, almost made it to the century mark. He died last week at the age of 93. We’re grateful to have known him.

 What the numbers have been saying…

  • $2.5 billion

The amount the biggest U.S. banks—Goldman Sachs, JPMorgan Chase, Wells Fargo, Citigroup and Bank of America—collectively reaped from the new federal tax law in the latest quarter.

What the pundits have been saying…

“If it seems as though the stock market has been crazy volatile lately without really going anywhere, you’re not imagining things.”

  • Dana Lyons, partner at J. Lyons Fund Management, Inc


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