wealth definition

Wells Fargo & Money Center Bank Competitors (NYSE:WFC)


Business on Wall Street in Manhattan

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Investment Thesis

Big money moves markets, but not always permanently. With active and evolving political economics there is almost always change — often more political than economic. How to discern stock by stock impact prospects?

The sorting key is comparisons. But they must be of like features, ultimately winding up in their impact on coming market prices for specific investment issues.

We find volume trade orders by institutional investors have high credibility, are current, and provide good comparability when viewed through the active screen of derivative securities markets. The specific reasoning behind trade orders does not have to be evident when substantial costs are undertaken to protect market-makers in their implementation when Billion-dollar portfolios are to be adjusted.

It turns out that the limits of coming price change expectations provide dynamic measures of specific stock changes in reward~risk balances, which in turn offer active investment guidance to portfolio management. Guidance which is usually ignored by passive-investing buy&holders.

Today’s examples are Wells Fargo & Company (NYSE:WFC) and M&T Bank Corporation (MTB).

Description of the Subject Company

“Wells Fargo & Company, a diversified financial services company, provides banking, investment, mortgage, and consumer and commercial finance products and services in the United States and internationally. It operates through four segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management. Wells Fargo & Company was founded in 1852 and is headquartered in San Francisco, California.”

Source: Yahoo Finance

Street Analysts

Yahoo Finance

Description of Investment Alternative

“M&T Bank Corporation operates as a bank holding company that provides commercial and retail banking services: Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio services, Residential Mortgage Banking, Retail Banking services. The company also provides trust and wealth management and investment management services. It offers its services through banking offices, business banking centers, telephone and internet banking, and automated teller machines. As of December 31, 2021, the company operates 688 domestic banking offices in New York State, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia, and the District of Columbia; and a full-service commercial banking office in Ontario, Canada. M&T Bank Corporation was founded in 1856 and is headquartered in Buffalo, New York.”

Source: Yahoo Finance

Street Analtsts growth estimates

Yahoo Finance

The competitive environment

Money center banks are typically the century-old successors of both political and economic evolutions. Most have been quick to embrace developing technologies. There has been no scarcity of competitive intellect making the industry both very profitable and demanding.

The investing industry has been keenly aware of the basic developments in banking. Hundreds of new competitors have arisen and died in the march of technological progress. Figure 1 shows how the Institutional Investing community currently appraises the Reward opportunities and Risk exposures of over a dozen current competitors.

Figure 1

Risk & Rewards implied in MM hedging actions


(used with permission)

The tradeoffs here are between near-term upside price gains (green horizontal scale) seen worth protecting against by Market-makers with short positions in each of the stocks, and the prior actual price drawdowns experienced during holdings of those stocks (red vertical scale). Both scales are of percent change from zero to 25%.

The intersection of those coordinates by the numbered positions is identified by the stock symbols in the blue field to the right.

The dotted diagonal line marks the points of equal upside price change forecasts derived from Market-Maker [MM] hedging actions and the actual worst-case price drawdowns from positions that could have been taken following prior MM forecasts like today’s.

Our principal interest is in WFC at location [8] and its principal competitive nemesis, MTB at location [9]. A “market index” norm of reward~risk tradeoffs is offered by SPDR S&P500 index ETF at [12].

Those forecasts are implied by the self-protective behaviors of MMs who must usually put firm capital at temporary risk to balance buyer and seller interests in helping big-money portfolio managers make volume adjustments to multi-billion-dollar portfolios. The protective actions taken with real-money bets define daily the extent of likely expected price changes for thousands of stocks and ETFs.

Overall it points out that bank stocks currently have less capital gain prospect for the risks they open than does the market-average ETF.

This map is a good starting point, but it can only cover some of the investment characteristics that often should influence an investor’s choice of where to put his/her capital to work. The table in Figure 2 covers the above considerations and several others.

Comparing Alternative Investments

Figure 2

detailed data from MM hedging actions


(used with permission)

Column headers for Figure 2 define elements for each row stock whose symbol appears at the left in column [A]. The elements are derived or calculated separately for each stock, based on the specifics of its situation and current-day MM price-range forecasts. Data in red numerals are negative, usually undesirable to “long” holding positions. Table cells with pink background “fills” signify conditions typically unacceptable to “buy” recommendations. Yellow fills are of data for the stock of principal interest and of all issues at the ranking column, [R].

Readers familiar with our analysis methods may wish to skip to the next section viewing price range forecast trends for WFC and MTB.

Figure 2’s purpose is to attempt universally comparable answers, stock by stock, of a) How BIG the price gain payoff may be, b) how LIKELY the payoff will be a profitable experience, c) how soon it may happen, and d) what price drawdown RISK may be encountered during its holding period.

The price-range forecast limits of columns [B] and [C] get defined by MM hedging actions to protect firm capital required to be put at risk of price changes from volume trade orders placed by big-$ “institutional” clients.

[E] measures potential upside risks for MM short positions created to fill such orders, and reward potentials for the buy-side positions so created. Prior forecasts like the present provide a history of relevant price draw-down risks for buyers. The most severe ones actually encountered are in [F], during holding periods in effort to reach [E] gains. Those are where buyers are most likely to accept losses.

[H] tells what proportion of the [L] sample of prior like forecasts have earned gains by either having price reach its [B] target or be above its [D] entry cost at the end of a 3-month max-patience holding period limit. [ I ] gives the net gains-losses of those [L] experiences.

[N] suggests how credible [E] may be compared to [ I ], and it is here where T is in the greatest trouble with Institutional Investors. Its long history of below-average price-gain performance despite positional and political advantage tends to damage credibility.

Further Reward~Risk tradeoffs involve using the [H] odds for gains with the 100 – H loss odds as weights for N-conditioned [E] and for [F], for a combined-return score [Q]. The typical position holding period [J] on [Q] provides a figure of merit [fom] ranking measure [R] useful in portfolio position preferencing. Figure 2 is row-ranked on [R] among candidate securities after WFC at top, with MTB in next rank.

Along with the candidate-specific stocks these selection considerations are provided as perspective. The averages of some 3300 stocks for which MM price-range forecasts are available today, as are 20 of the best-ranked (by fom) of those forecasts. The forecast for S&P500 Index ETF…


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