Wells Fargo faces angry questions after new sales abuses uncovered

New revelations that Wells Fargo & Co spent years enrolling unknowing borrowers in costly auto insurance has put the bank under pressure to answer for a months-long scandal over sales practices that have harmed millions of Americans.

The latest news that 800,000 Wells Fargo auto borrowers were improperly charged for insurance rattled investors yet again, and sent its stock down 2.6 percent on Friday (28 July). 

Shareholders, analysts, lawmakers and consumer advocates demanded answers about how the situation manifested, and why Wells Fargo did not disclose the problem sooner, given existing turmoil over phony deposit and credit card accounts opened in customers' names without their permission.

"This is a full-blown scandal - again," said New York City Comptroller Scott Stringer, who oversees public pension funds that hold roughly 11.6 million Wells Fargo shares. "It's unbelievable, outrageous, sad, and yet quintessential Wells Fargo. This isn't just a corporate debacle. It's caused real human harm."

More news, Wells Fargo faces angry questions after new sales abuses uncovered


Source :
1) www.thestar.com.my

There’s no better time than now to buy into US banks. Here’s why

The Bank of Singapore (BoS), a subsidiary of Oversea-Chinese Banking Corporation (OCBC), remain "overweight" on the US financial sector due to the potential de-regulation for US banks as well as their prospects for higher-than-expected rates.

In a fully-valued and sideway market, it continues to advocate for investors to employ a rotation strategy - namely rebalancing out of overvalued sectors like technology, and rotating into undervalued sectors such as US financials.

"We think the markets are underpricing inflation and the Fed's hiking cycle. If inflation expectations were to increase and the Fed to raise rates according to its plans, the financial sector could benefit from it," comments BoS investment strategist James Cheo in a Friday report (30 June).

This comes after the US Federal Reserve's release of its Dodd-Frank Act Stress Test 2017 results, which suggest that banks are now have stronger capital positions and better risk management, and therefore more likely to have higher dividend payout and more share repurchases.

For the first time, the Fed has also waved through the capital distribution plans of all the major banks that it has tested, giving the green light to a record level of post-crisis distributions - share buybacks and dividends.

Cheo believes the favourable stress test results reinforces the bank's positive view on the financial sector, and recommends Capital One Financial Corp as well as Wells Fargo & Co as his top "buy" picks among the US banking sector, with fair values of US$102 and US$67, respectively.

"The reasons behind the Fed's sanguine outlook is because US banks have substantially increased their capital since the first stress tests in 2009. The common equity capital ratio - which compares high-quality capital to risk-weighted assets - of the 34 banks has more than doubled from 5.5% in the first quarter of 2009 to 12.5% in the first quarter of 2017," explains the strategist.

"This reflects an increase of more than US$750 billion ($1 trillion) in common equity capital to a total of US$1.25 trillion now."

Further, Cheo believes that the Fed makes its stress test "less onerous", judging from how it dropped its qualitative part of the test in recent years for smaller US lenders and several foreign groups.

"In the past, Fed has urged the banks to build capital and to improve the way banks monitor risks. Even if they passed the test, banks were often issued with long lists of 'matters requiring attention'. Now, it appears that the Fed is becoming more comfortable with the ways banks manage their risk," he observes.

Noting that the 34 US banks tested were, in aggregate, projected to pay out close to 100% of net earnings over the next four quarters compared to 65% last year, Cheo says banks such as JPMorgan will be returning more capital than they are generating, while many of the rest will be radically lifting payouts from previous levels.

Citigroup, for instance, was recently cleared to return US$18.9 billion to shareholders, which represents an 82% increase from the year before.

"Ever since the financial crisis, shareholders of banks had to live with a pare-back payout as the Federal Reserve wanted the banks to rebuild its capital positions. With the improved capital positions and better risk management, US banks are now able to give higher payouts either in dividends or share buy backs," concludes Cheo.


Source :
1) TheEdge Singapore, 3rd July 2017.

Credit Acceptance Corp. (NASDAQ - CACC) - As Inventor of Subprime Car Loans Exits, Critics Smell a Lemon

When Don Foss was inducted into his industry’s hall of fame in 2015, he was adamant he wasn’t retiring. Addressing a Las Vegas audience of easy-credit used-car dealers who lauded him for creating the subprime auto-loan business, he said, “I’m just getting started.”

Last summer, however, he sold Carite Corp., a chain of used-car dealerships that he founded in 2011. In January he stepped down as chairman of Credit Acceptance Corp., the company he started in 1972 that pioneered extending auto loans to customers with rock-bottom credit scores or none at all. A month after he left, he sold a big chunk of his Credit Acceptance shares for $128 million.

The company didn’t say why Foss sold his shares and declined to comment. Foss didn’t respond to requests for comment. But his exit coincides with tough times for subprime auto lenders in general and Credit Acceptance in particular. Short sellers — investors who bet that a security will fall in price — have become intrigued by the idea that a bubble is forming in subprime auto lending. Bearish bets on Credit Acceptance have risen to about 48 percent of the shares tradeable by public investors, making it the third-most-shorted stock on the Russell 1000 Index of large and midsize companies.

For more news, click below link :
As Inventor of Subprime Car Loans Exits, Critics Smell a Lemon 

Prior to these news, on 27 April, Bloomberg reported Wells Fargo & Co. and JPMorgan Chase & Co. have grown more reluctant to make new subprime loans using money from their own balance sheets. Wells Fargo tightened its underwriting standards and slashed the volume of all loans it made to car buyers in the first quarter by 29% after greater numbers of borrowers fell behind on payments. JPMorgan’s consumer and community banking head Gordon Smith earlier this year said the bank had cut its new lending for subprime auto loans "dramatically".

More news, Wells Fargo, JPMorgan Wary of Auto Loans, Pack Them in Bonds

Weekly chart of Credit Acceptance Corp.

The share price has been trading sideway since Oct 2015.

We shall look more on the price chart in the upcoming post.


Source :
1) www.bloomberg.com