Wells Fargo executive jumped to his death

On October 1, local time, the Daily Mail reported that a 46-year-old Wells Fargo executive jumped to his death at the beginning of this year.

As soon as this news came out, people immediately focused their attention on the US banking crisis.

This time, Wells Fargo executives jumped to their deaths, and there are still a lot of suspicious things.

According to reports, the executive was still receiving business calls until 11 p.m. on the night of his death.

In addition, the executive has been in charge of risk control within Wells Fargo, and his family said that Gregg is under great work pressure, his workload is increasing, and he works very long hours every day.

Although this happened at the beginning of the year, it is inevitable that the executive's jumping was associated with the risk faced by Wells Fargo.

This is also because, since the beginning of this year, Wells Fargo has been a constant moth.

(1) Bizarre deposits disappear

During the bankruptcy of Silicon Valley Bank in March this year, Wells Fargo broke the news that some customer deposits disappeared.

Wells Fargo responded at the time that the deposit disappeared because of an unknown technical problem.

This "unknown" is very spiritual, and such technical problems have reappeared in only 5 months.

On August 4, CNN reported that a large number of customers contacted Wells Fargo through social media, claiming that they could not withdraw the funds in their accounts or that the funds in their accounts had disappeared.

Wells Fargo only said on social media on August 4 that due to a technical failure, some customers really could not see the recent deposit transactions on their accounts, and the failure has not been fully resolved, and the technical department is working to solve it as soon as possible, and the bank called on affected customers to contact them.

It is indeed outrageous that such a large bank as Wells Fargo should constantly have such "technical failures" that cannot be solved quickly.

A so-called technical failure, or an "unknown" technical failure, then I have every reason to suspect that this is not a technical failure, but some kind of "unknown" problem in Wells Fargo's internal risk control system.

Wells Fargo is the third largest bank in the United States, founded in 1852, and is a long-established banking giant in the United States.

In terms of bank market capitalization alone, Wells Fargo's market capitalization is second only to JPMorgan Chase and Bank of America, and Citibank, which ranks fourth, has only about half the market capitalization of Wells Fargo.

So, Wells Fargo has always been one of the giants of the U.S. banking industry.

But Wells Fargo has been plagued by negative news in recent years.

(2) Problems continue

In 2018, Wells Fargo broke into a scandal because of the excessively high sales targets, which led Wells Fargo's junior employees to open millions of bank accounts and credit cards without customer permission to inflate a large amount of revenue.

As a result, the Fed imposed rare restrictions on Wells Fargo in 2018, prohibiting the bank's assets from exceeding their late-2017 levels, or $1.95 trillion.

Although in 2020 due to the epidemic crisis, the Fed slightly modified its growth restrictions on Wells Fargo.

But as of the second quarter of this year, Wells Fargo's total assets of $1.9 trillion still did not exceed the level of late 2017.

According to Wells Fargo's asset growth trend in 2018, the Fed's growth limit on Wells Fargo has reduced Wells Fargo's assets by about $400 billion.

Wells Fargo was originally considered a retail giant in the U.S. banking industry, and such restrictions were undoubtedly a tight curse for Wells Fargo.

After 2018, Wells Fargo is a bit rotten, and all kinds of negative news continue.

On December 21, 2022, the U.S. Consumer Financial Protection Bureau issued the largest fine in banking history, ordering Wells Fargo to pay approximately $3.7 billion, of which $1.7 billion was a civil penalty and $2 billion was compensation to affected consumers.

It's no wonder Buffett liquidated Wells Fargo last year, which he had held for 33 years.

You know, Wells Fargo was once Buffett's favorite, not only held for 33 years, but also once held Wells Fargo's market value of up to $32 billion, and was Wells Fargo's largest shareholder.

As a result, Buffett said that clearing the warehouse will clear the warehouse.

Therefore, it is widely believed that Wells Fargo has some kind of unexplained risks and problems.

However, in the second quarter of this year, Wells Fargo's financial report exceeded market expectations.

Wells Fargo's second-quarter revenue was US$20.53 billion, up 20.6% year-on-year, higher than market expectations of US$20.12 billion.

Wells Fargo's second-quarter net interest income was $13.2 billion, up 29% year-over-year;

But the good-looking earnings report didn't raise Wells Fargo's shares.

After Wells Fargo reported its earnings on July 14, it is estimated that although there was a wave of gains, it soon saw a larger wave of declines, which has been falling until now.

Wells Fargo's second-quarter earnings report was good, mainly because after the bankruptcy of Silicon Valley Bank, a large number of customers of small and medium-sized banks flocked to the top large banks.

After a large number of customer deposits are transferred to the head bank, the head bank can easily obtain high interest margins as long as they re-lend these deposits. Because the Fed's aggressive interest rate hike has also caused a sharp increase in lending rates.

As of September 28, the average interest rate on 30-year fixed-rate mortgages in the United States has risen to 7.31%;

The significantly increased net interest income is the main reason why leading banks such as Wells Fargo generally performed well in the second quarter.

But this surge in net interest income does not mask the current problems prevailing at Wells Fargo and even in the U.S. banking industry.

(3) General problems in the U.S. banking industry

Although the Fed's interest rate hike also brings high interest margin income to the US banking industry, it also brings huge risks to the asset side of the US banking industry.

The assets held by the U.S. banking industry are mainly the purchase of large amounts of U.S. Treasury bonds, corporate bonds, personal real estate loans, and commercial real estate loans.

Among them, US Treasury bonds and corporate bonds have experienced serious price declines due to the Fed's aggressive interest rate hikes.

The price of US 10-year Treasury futures fell from a peak of 140 in 2020 to 107 now, down 23%;

The price of 30-year US Treasury bonds has fallen from a peak of 180 in 2020 to 111 now, a decline of 38%;

The main reason for such a sharp drop in the price of US long-term Treasury bonds is that the Fed's aggressive interest rate hike has allowed US Treasury yields to continue to rise.

The yield on the US 10-year Treasury note has risen to 4.7% from 3.4% in March.

Bond yields and bond prices are inverse.

When bond prices fall, bond yields rise.

This also means that the current long-term US debt selling pressure is huge.

Short-term U.S. bonds are relatively better, because if the price of U.S. bonds within 1 year falls sharply, then the bondholder is to hold the maturity and get back the principal and interest with the U.S. Treasury, and the floating loss will not become a real loss.

Long-term U.S. bonds, such as 10-year U.S. bonds, should be held for 10 years, although they can be sold halfway, but if the bond price falls during the period and sells in the middle, it will lead to floating losses becoming real losses. You have to hold it for 10 years to get the principal and interest back.

During this period, if some holders of long-term U.S. bonds have to sell U.S. bonds due to some sudden factors, then floating losses will become real losses.

For example, the reason why Silicon Valley Bank went bankrupt in March this year was because of a large number of customer runs, resulting in Silicon Valley Bank being forced to sell a large number of long-term US debts it held, and floating losses turned into real losses, resulting in serious losses.

The United States experienced a 13-year super quantitative easing cycle before 2021.

Although there was a 2018 rate hike and balance sheet reduction in the middle, the rate hike was not strong and soon came to an abrupt end.

Moreover, the unlimited printing of money in 2020 allowed the US banking industry to buy a large number of US Treasury bonds at high prices in a super-loose environment with zero interest rates.

The peak of the price of 10-year U.S. Treasury bonds is the high point set in 2020, when the 10-year U.S. Treasury yield was only about 0.6%, so compared to the 10-year U.S. Treasury yield that is now 4.7%, buying a 10-year U.S. Treasury bond with a yield of only 0.6% in 2020, the price will fall sharply, because the yield of the 10-year U.S. Treasury bond that others buy now is much higher than you, and you want others to buy your low-interest U.S. bonds, you have to sell them at a discount, so that others buy your low-interest U.S. bonds at a discount. It can also have a yield to maturity of 4.7%.

To put it bluntly, it is to use the bond price difference to make up for the interest rate difference.

Therefore, the large number of long-term US bonds held by the US banking industry are generally seriously floating.

However, these floating losses will not be directly reflected in the bank's financial performance.

Some leading banks can still carry floating losses without selling, as long as they carry the Fed's interest rate hike cycle, then these floating bonds will improve.

But many small and medium-sized banks cannot carry the Fed's interest rate hike cycle, Silicon Valley Bank, First Republic Bank are examples of failures, and more small and medium-sized banks are on the way.

Compared with these small and medium-sized banks, head banks such as JPMorgan Chase and Bank of America have a great capital advantage, not to mention the banking crisis, which will also make depositors of small and medium-sized banks flock to the head banks.

However, Wells Fargo is one of the most problematic banks in the United States.

Originally, Wells Fargo mainly relied on retail, but this year's two bizarre "deposit disappearance" incidents have greatly reduced Wells Fargo's reputation.

Some American netizens complained on social platforms: "I want to get back my checking, savings and retirement account IRA from Wells Fargo, and bury it in my backyard for safer." ”

In the current situation of general floating losses of long-term U.S. bonds held by the U.S. banking industry, once there is a wave of customer runs, as long as they are forced to sell long-term U.S. bonds and turn floating losses into real losses, they will basically fall into a death spiral.

Therefore, Wells Fargo, whose credibility has been damaged, naturally raises doubts.

In addition, Wells Fargo's second-quarter loan loss provision of $1.7 billion was also higher than market expectations, compared with $580 million in the same period last year and $1.2 billion in the first quarter.

With the Fed's aggressive interest rate hike, it is not only the floating losses of US Treasury bonds that erode the assets of banks, but also the rising default rate of US corporate bonds, and the risk of a thunderstorm in commercial real estate loans such as office real estate.

In the first eight months of this year, as many as 69 U.S. companies defaulted on their debt, up 176% from the same period in 2022. August was particularly severe with 16 corporate defaults, the highest August default rate since 2009.

Therefore, with the aggressive interest rate hike by the Federal Reserve, the asset side of the US banking industry is brewing huge risks.

It is understandable that Moody's, one of the three major international rating agencies, issued a report on August 7, downgrading the credit ratings of 10 small and medium-sized US banks, and placing 6 large US banks on the downgrade watch list, and the rating outlook of 11 banks was rated negative.

On August 15, Fitch also downgraded dozens of U.S. banks, and it should be noted that Fitch did not downgrade the credit rating of small and medium-sized banks, unlike Moody's, which downgraded the credit rating of JPMorgan Chase.

In fact, as early as June this year, Fitch downgraded the operating environment rating of the US banking industry from AA to AA-.

Overall, as the Fed continues to maintain a high interest rate environment, the US banking crisis will continue as long-term Treasury yields continue to rise.

The jump of Wells Fargo executives is likely to be a microcosm of the crisis in the US banking industry.