Housing market in U.S. went through a bubble that subsequently deflated. Many firms contributed to the bubble with their loose lending standards. In the aftermath of the bubble burst, a few big firms were rendered insolvent and had to be bailed out by U.S. government or acquired by other firms.

Wells Fargo (Symbol: WFC) has a history of prudent lending that is inbuilt into its corporate culture. Being relatively unscathed in the financial crisis, it was able to acquire Wachovia at a cheap price that created much value for Wells Fargo’s shareholders. Citigroup (Symbol: C) tried to buy Wachovia too but didn’t have the financial strength as it is a recipient of government’s bailout fund. The acquisition has increased the value of Wells Fargo.

Strong businesses are pricey under normal market conditions just like Wells Fargo was before the financial crisis. Value investors seek to buy business at a margin of safety and it is during downturn like this that opportunities are readily available.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. I own shares in Wells Fargo.

https://www.wellsfargo.com/about/investor-relations/

Updated on 1 April 2019