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This has been a terrible year for financial institutions. However, Wells Fargo (NYSE: WFC) has been able to make it through the obstacle course better than most.The stock has been up and down with the market but the scandals and large write-downs that have tanked other companies have not been a part of the Wells story.
What has me wondering about Wells today is the prospectus I received from the company to purchase shares at $27 each. The offer is for 407,500,000 shares, far more than I could swallow at a cost in excess of $11 billion -- I have never seen that kind of money!
I'm sure they just figured I might take at least a few shares off their hands, and I have in the open market. If memory serves me correctly, this offering was announced about six weeks ago. The strange thing is that this came to me on a day when the stock closed at a price of $21 and change. Who pays $27 for a $21 stock?
What makes this even stranger is that I have been told that Wells Fargo did not want to accept the Treasury's largess of $25 billion that was doled out to nine major banks last month. They did so only after some major arm twisting because they did not want to be viewed in the same way as those institutions that did need the money.
So, if Wells took $25 billion they did not need or want, that means they might now have $14 billion more than they planned after the recent stock offering. Why not cancel the offering? Was this just something that they were obligated to do because they filed with the SEC and could not reverse course? Is this just one more anomaly portraying the lack of coordination among the governments financial agencies?
I suppose this is all a part of the bigger picture giving Wells the financial stature to acquire Wachovia Corp (NYSE: WB) without straining itself.
I wonder if Wells could use the federal money to buy back shares at the currently lower price and push the stock back up beyond the offering price. This would make the offering a bargain again, since it was trading in the mid $30's when the announcement was originally made. It would also mean that Wells would not have to increase the amount of shares in circulation to accommodate the offering and not suffer any dilution.
I think that is what has the shares down now, at least in part. Certainly the Treasury would not begrudge Wells taking any action that would increase the financial stability of the company.
Wells closed yesterday at $23.41 and is trading up over 5% today. Given that no shocking news has been reported and that WFC is paying over a 6% yield at these levels, I continue to be a buyer on dips, and will join 'my pal Warren' expanding my position, although I do not imagine they will ever offer me a seat on the board.
UPDATE: Closing price $25.89, up$2.48, or 10.59%
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WFC.
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Reader Comments (Page 1 of 1)
12-15-2008 @ 10:19AM
Rob said...
"Who pays $27 for a $21 stock?"
You're looking at it the wrong way. Try "who would *not* pay $27 for a stock that generally trades at $3-5 higher, that dropped to $21 on general market malaise, and is flat-out bound to recover?"
Or, another way to look at this would be "Why weren't more people buying when the stock price was insanely deflated at $21?"
12-15-2008 @ 10:28AM
Sheldon L said...
Rob...they were buying in droves at $21, That is why it did not stay there very long. However you write your comment with poor timing because it is trading under $27 now at $25.67.