Accumulating WFC

Wells Fargo (WFC) has recently been caught in a fairly obnoxious “fake accounts” scandal. Its CEO, John Stumpf, was eventually forced to resign.

Bank employees gamed “the number of customer relationships” metric to earn performance-based bonuses. The most sickening part of this “incentives gone crazy” episode was how unnecessary it was.

There is very little evidence that all this bad behavior made WFC any money. In the wake of the storm, WFC fell to a 52-week low of $43.55.

I recently valued the company, and suggested a reasonable price range between $50-$60. I suggested accumulating below $48, which I think is a fair price for a great company.

Did the events of the past few weeks damage the franchise permanently? The market’s reaction seems to indicate “no!” While I am not sure, I think the issue might be fixable.

I bought a little more WFC during the recent down-trip, for an average price of $46.20. I’ve also been trying to back into the position using puts for much of this year. If I ignore tax implications, they have helped reduce my cost basis by $1.50/pop. I still have 2 Nov16 puts at a $43 strike outstanding, which I will be happy to take delivery of.

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