(Corrects spelling of Buffett in fourth paragraph.)
Wells Fargo & Co.'s stock is becoming a favorite gamble for wealthy investors.
Earlier today, a group led by philanthropist Walter Annenberg said it owns 5.3%, or 2.8 million shares, of Wells Fargo stock. Valued at about $191 million, the stake includes 288,500 shares bought from July 10 to Aug. 19.
Wall Street appeared to like the news. Within three minutes of notice hitting the news wires, Wells's stock jumped 1 1/4 to 70, its high for the day. It closed at 69 1/8, up 1 1/4.
Campbell Chaney, analyst at Sutro & Co., said, "The question is, what is his intention? Is Annenberg the same type of long-term investor as (Berkshire Hathaway's Warren) Buffett?"
Don Mullin, treasurer of the St. Davids, Pa.-based Annenberg Foundation, declined to comment.
"Apparently he doesn't think there are other banks to invest in," said Lawrence Vitale, analyst at Kemper Securities, Inc. "Aside from BancOne, Wells has the best pre-tax, pre- provision revenue stream in the industry." Vitale added that Wells's revenue exceeds $1.8 billion annually.
"The flip side is they could drown in real-estate problems before their earnings leverage is released," Vitale said.
Robert Eisthen, analyst at Securities Corp. of Iowa, said, "Annenberg and Buffett are betting on Wells hitting a 1% or better return on assets. My guess is Wells won't return to those levels."
For 1991, the bank holding company showed a return on assets of about 0.4%, which increased to 0.63% in 1992's second quarter.
On Aug. 14, Buffett disclosed in a Securities and Exchange Commission filing that he holds 10.81% of Wells's stock, or 5.54 million shares. From Aug. 4 to Aug. 10, Buffett purchased 613,500 shares.
"Wells is basically a large California bank," Eisthen said. "I think they're falling behind others such as First Interstate and BankAmerica who have franchises outside the state."
For the first half, Wells reported that net income increased to $201 million, or $3.42 a share, from $166 million, or $3.07 a share, a year earlier. But the company said then that evaluations of its loan portfolio and regulatory examinations might result in "significant" increases to its allowance for loan losses.
Non-accrual and restructured loans as of June 30 rose to $2.3 billion, or 5.8% of total loans, from $1.5 billion, or 3.2%, a year earlier. Foreclosed assets increased to $555 million from $491 million.
Standing in the way of a Wells Fargo revival is the depressed California economy.
"California in the past was the attractive, low-cost place to do business. Now, businesses are fleeing the state toward Utah, Nevada, Oregon and New Mexico," Securities Corp. of Iowa's Eisthen said.
Daniel Murray, analyst at Argus Research, said, "The bank's troubles aren't completely over with. Hopefully, California is at the bottom of its recession."
And Sutro's Chaney said, "They're a top-notch lender, but past lending strategies won't work anymore. They're shifting toward small business and consumer lending."
Annenberg, who began TV Guide and is president of the foundation named for him, can afford to sit and wait for the share price to appreciate. The foundation gave grants totaling $59.6 million in fiscal 1990 and holds assets of more than $1 billion.
"Long term, it's a possibility Annenberg could make a profit," Eisethen summed up, "but Wells isn't the safest place to put your money right now."
Kemper's Vitale said, "Annenberg and Buffett see strengths they feel the market isn't recognizing. I see the same strengths, revenue stream, management's expertise and the historical resiliency of California, but question whether they're sustainable."
(For more information see: WFC, BAC, I, ONE US Equity BQ for Wells Fargo, BankAmerica, First Interstate, BancOne; NI BNK for banking news)
-- Todd Blecher, Thomas Howland,
Princeton Newsroom (609) 497-6502/bb