Monday, May 4, 2009

Stress Tests

Later this week we will hear the stress test results. Even though Buffett has made it clear he doesn't think Wells needs capital...the regulators will almost certainly require them to raise some.

The capital raise is not likely enough to cause major dilution so long-term I still view it as the best bank to own. If they do raise capital it is possible that the government's CAP conversion price ($ 16.78/share) will anchor the stock. That is why I have targeted buying new shares slightly below at $ 14/share for now. Once the amount of possible shareholder dilution is more clear I may increase that price.

Assuming only minor dilution from the stress tests I still view the intrinsic value of Wells to be $45-55/share within 3 years as I said on April 8th.

Adam

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