Banks

Stocks A to Z
1

Last night I looked BAC n WFC 10 K and Q4 presentations.

BAC has 33% of their assets in securities and cash.

BAC indicated that a 100 Basis point shift in the yield curve as of Q4, which has mostly happened, NII will be up $6.5 BB (I assume this means the annual run rate).

We should see this play-out over the next few quarter.

I believe the yield curve inversion will only slightly mute this effect. Bank balance sheets are far more tied to fed funds and shorter term security yields than in the past. Banks have far less fixed rate mortgages than in the past, and therefore the general level of rates and not the slope of the yield curve I believe is far more important.

WFC 2022 forecast assumes 3 rate increases. Current fed dot plots indicates up to 7. WFC forecast is likely understated as well.

I believe the current selloff is unfounded. We will know more in 3 weeks or less.

I have been accumulating over the past few days. Mostly today.

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2

As of 12.31 WFC assets, including loans, yield 2.31%.

Basically less than a 2 year treasury today.

Even all of the loans only yield 3.32%, less than half of the assets.

Since 12.31.21 WFS has reduced mortgages and home equity by approximately 15 and 30%, respectively. These are the longest duration products.

WFC Q4 presentation predicts 8% increase in NII based on recent forward rate curve at time.

Assume Q4 2022:
Fed funds 0.88%
10 year Treasury 1.87%

Current projections more like:
Fed funds 1.75%
10 year treasury currently 2.35%

IPO’s and capital market activity may be lower than plan.

WFC may exceed $3.95 per share in 2022.

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3

Could the market fear a recession is coming? Banks would suffer if that happens.

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