Earlier this week, Wells Fargo
Laggard or leader?
The better-run institutions that received the first round of TARP investments -- including JPMorgan Chase
Stock |
Price / Book Value |
Price / Tangible Book Value |
P/E (Current Fiscal Year + 2) |
---|---|---|---|
US Bancorp |
1.74 |
3.51 |
10.1 |
Wells Fargo |
1.46 |
4.34 |
8.55 |
JPMorgan Chase |
1.09 |
2.04 |
8.61 |
Bank of America |
0.72 |
1.80 |
7.13 |
Citigroup |
0.32 |
0.71 |
13.0 |
The bottom line
Wells Fargo certainly has the capacity to earn its way out of the capital shortfall the government identified in its stress test -- over time. But with a current Tier 1 Capital ratio of 9.80%, it's only in the middle of the pack in terms of capital adequacy, so it's far from clear that the immediate repayment of TARP funds would elicit a positive reaction from investors. This proud firm may be better off biding its time in the company of the industry's "dunces" for now -- I expect its results will set it apart again over the next few years.
Wells Fargo is a high quality company. Morgan Housel has identified three other high-quality companies that are still cheap.