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Downgrading Two of Four 'Too Big to Fail' Banks

Wells Fargo (WFC - Get Report) ($36.50 vs. $34.85 on Feb. 6) has been downgraded to hold from buy with the stock 8.2% overvalued with a one-year price target at $38.14. WFC traded to a new multi-year high at $36.62 on Friday a level not seen since October 2008. The stock has gained 16.2% over the last twelve months with a reasonable twelve month forward P/E ratio at 10.13.

WFC has a positive but overbought weekly chart profile with its five-week MMA at $35.34 and the 200-day SMA at $29.43. My annual value levels are $34.17 and $32.82 with a monthly pivot at $35.06 with no risky level versus the September 2008 high at $44.67.

FDIC data shows that WFC increased its total assets by 9.0% to $1.33 trillion in Q4, sequentially moving up to being the third largest of the big four banks. WFC has an asset to risk based capital ratio of 10.15% unchanged from 10.18% in Q3. WFC is another "too big to fail" bank that's even bigger.

Wells Fargo has the largest exposure to construction & development loans (C&D) at $17.28 billion. While this is nowhere near an overexposure versus risk based capital, it represents 8.5% of the total C&D loans in the banking system.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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