Chasing Value: Wells Fargo, a Seinfeld Episode?

If Jerry Seinfeld were going through the ridiculous situations I and many other clients of the bank are experiencing, he might be inspired to do a two-hour special -- reviving the long-running series for a night.

To be fair, I think the stock trading recently in the low $30s is a bargain and is set to move up, in advance of the overall market, for at least the next two years. That said, the difficulty and often absurd situations that have been created by Wells policies and divisions would be hysterically funny if they were not so exasperating while I'm working through them.

For months leading up to the updated WellsTrade platform, there was anticipation of major improvements, and there are some. But for some reason there seems to be some curse that also makes things worse as well. These are things that every broker I deal with readily agrees with and has asked to be corrected, but it is too dumb and too painful to have people smile and agree while they are helpless to do anything about -- remember: "Yes, we have your reservation, we just do not have the car," offered with a big bright and courteous smile.

As an example, they used to indicate the status of the DJIA, Nasdaq and S&P on the main positions page. Not any more; you have to go to a different tab to check on the status. They used to show you the order status on the positions page; again, you have to look elsewhere. Hopefully they will rectify the missteps soon. It's beyond my comprehension how the IT team working with the brokerage team for two years could have so many flaws.

On the service side, Wells Fargo and most other giant banks want you to believe that by having a broad range of services under one roof they are better able to serve you. Nothing could be further from the truth. The bankers, stock brokers, insurance reps, mortgage brokers, trust managers, online assistants, and underwriters do not put forth a collaborative effort at all. This is not just frustrating to the customer but it's increasingly frustrating to company employees as well.

Here is a real case in point I encountered when I refinanced my home. The banks have gone from "liar loans" to requesting three years of tax returns and enough other information that you would think the IRS, SEC, FBI and Homeland Security were sitting in their offices looking over their shoulders. Perhaps they are? Once the paperwork was all complete, the loan was approved with one outstanding detail. The holder of the equity line had to subordinate to the bank mortgage, meaning accept a second position.

It became quite a hold-up by the equity line underwriters. This might be understandable in many circumstances except for one major thing: Wells Fargo held the equity line. You would think Wells Fargo would have no problem subordinating to itself! However, for some stupid reason that could never be explained, they did have a problem. The fact that both the home mortgage underwriters and the equity line underwriters were a part of Wells made no difference, and no benefit was derived from them being "under one umbrella."

It became even more Seinfeldian (if he added to the lexicon, so can I), when the mortgage broker and the bank vice president called to move things along. Their first calls fell on deaf ears, and then the ultimate joke: the equity underwriters must have been feeling under siege because they sent an email to the bankers to stop calling and that they were actually not going to take any calls from anyone for 48 hours.

When I was informed of this I had had enough and made a call to the Private Bank, the closest thing to an ombudsman there is, and not available to the majority of customers. They were able to get through to the underwriters and move things along. In the end the mission was accomplished, but as to there being any advantage in having all the services under one roof -- that is a fallacy.

There are many more instances of bank stupidity and ineptitude that I could share, but everyone reading this is most likely living through the same episode, whether they have a neighbor named Kramer or not. So I will return to the specifics of the stock after one last important note. A majority of the managers and staff at the bank share your frustration -- sometimes even more so because they have to answer for it, often are helpless to do anything about it, and take most of the ire.

Most well-read investors are aware that the largest shareholder of Wells Fargo is Berkshire Hathaway (BRK.A and BRK.B) possessing 6.5% of the outstanding shares. They have been adding to this position over the past few quarters. This does not surprise me because, for all my complaining about the service, I have favored the stock as well.

In May 2009 I rationalized that Wells shares could double in value in three years' time, putting a May 2012 price on it of $48.50. The stock closed Wednesday at $32.80. It would appear that "my pal Warren" might agree with me based on his recent actions.

Here are some current metrics to consider. The company had earnings per share growth over 26% in the past year, yet the P/E ratio is about half that figure. The PEG ratio, price-to-earnings-to-growth, is 1.24 based on earnings projections. I would view this as an approximation based on the earnings guesswork involved, but still a low figure. WFC pays a small dividend, but there has been much talk of it increasing soon. It also has a modest price-to-cash-flow of 6.9, and a low book value of 1.15.

While the bank has a long way to go in improving and integrating its services it also has a long way to go in stock appreciation -- and that I can very "Wells" appreciate.

Sheldon Liber is an architect and the CEO of Chasing Value™ Asset Management, Inc., a small private investment company. He writes the columns Chasing Value™ and Serious Money and is on twitter: @ChasingValue. Disclosure: Mr. Liber currently owns shares of BRK.B and WFC.