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Wells Fargo (WFC) Replies |
HenryTo
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Joined: 06 Aug 2004
Posts: 11743
Location: Los Angeles, California
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 Posted: Tue Jan 17, 2012 3:54 pm Post subject: |
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Morningstar on WFC's 4Q earnings.
| Quote: | | Wells Fargo WFC posted net income of $15.9 billion, or $2.82 per diluted share, for 2011, in line with our expectations. We are leaving our fair value estimate unchanged. We think the company's 1.25% return on assets was quite acceptable in the current environment. Furthermore, we believe earnings are likely to grow over the next few years as the balance sheet expands, interest rates rise, credit quality improves, and mortgage-related expenses decline. The bank managed to increase total loans slightly during the fourth quarter, benefiting from increased demand for commercial and industrial loans and its strong position relati ve to peers--Wells Fargo purchased $2.1 billion in commercial real estate loans. Credit card balances increased 5%, indicating that consumers may also be more willing to take on debt than in recent years. At the same time, Wells Fargo did a good job managing its balance sheet in a low-interest-rate environment. The company was able to increase its net interest margin by 5 basis points despite an unfavorable yield curve and a falling average loan yield. Wells Fargo continued to excel at deposit gathering during the year, increasing average core deposits 9% during the year and lowering its average deposit cost to 0.22%. Other banks have also experienced significant deposit growth over the past few quarters, but it's encouraging to see Wells Fargo increasing deposits rather than losing customers during the Wachovia acquisition. The bank's low-cost deposit base is a key source of competitive advantage, and we expect that it contribute even more to the company's results when inte rest rates eventually rise. We were pleased to see Wells Fargo repurchase 26.6 million shares during the fourth quarter and enter into an agreement to purchase another 5.6 million in the first quarter of 2012. The company estimates that its Basel III Tier 1 common equity ratio was 7.49% at year-end, and we are comfortable with its 7% tangible common equity ratio, by our calculation. We expect Wells Fargo to raise its dividend during the year; however, we'd prefer to see the company continue to buy back shares while the stock is trading at a significant discount to our fair value estimate. |
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HenryTo
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HenryTo
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Joined: 06 Aug 2004
Posts: 11743
Location: Los Angeles, California
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| Posted: Tue Oct 18, 2011 12:14 pm Post subject: |
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Morningstar on WFC's 3Q earnings:
| Quote: | Wells Fargo's long-run earnings power is formidable.
Wells Fargo WFC reported net income available to common shareholders of $3.8 billion, or $0.72 per diluted share, for the third quarter of 2011. Net revenue came in slightly lower than our expectations, primarily due to a drop in market-related line items, including trading gains, commissions, and asset-based fees. We see the shortfall in these often volatile sources of income as temporary, and our fair value estimate remains unchanged.
More concerning, however, is the continued narrowing of net interest margin--down to 3.84% from 4.25% during the last four quarters. Our valuation incorporates a modest (around 30 basis points) increase in NIM from current levels during our five-year forecast. While our medium uncertainty rating and the resulting margin of safety protect against a substantial shortfall in net interest income, the low interest rate environment appears likely to pressure results for the foreseeable future. On the other hand, the company managed to grow its loan book by more than $8 billion during the quarter, driven primarily by strength in commercial and industrial lending. In our view, this indicates a reasonably healthy level of loan demand (and also supports our thesis that commercially focused banks will experience more growth in the near term), increasing our confidence that net interest margin eventually will rebound. We see the more than $800 million year-over-year and quarter-over-quarter declines in trading revenue and the $158 million decline in trust and investment fees during the quarter as temporary effects of a difficult quarter, and expect better results by 2012, if not the fourth quarter of this year.
Although revenue growth continues to be an issue across the banking sector, Wells appears to be making some progress reducing expenses. Noninterest expense fell by about $800 million during the quarter, and nearly $600 million from the third quarter of 2010, driven by lower employee benefits expense and a decline in other expenses. Our valuation incorporates a slight decline in expenses in 2012, consistent with the results reported in the third quarter. We therefore will be watching the expense lines carefully in the fourth quarter to determine if the reductions are indeed permanent.
Finally, Wells Fargo's capital position is acceptable, in our view. The company estimates that its Tier 1 common equity ratio under Basel III would have been 7.41% as of Sept. 30, 2011. The company repurchased 22 million shares in the third quarter, and another 6 million in a forward repurchase transaction that will settle in the final quarter of the year. We're pleased to see Wells Fargo repurchasing its undervalued stock, and would greet further buybacks with enthusiasm, though with more than 5 billion shares outstanding, it would take a considerable program to move the needle on our fair value estimate. |
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rffrydr
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Joined: 30 Oct 2005
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Location: Sunny California
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HenryTo
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Joined: 06 Aug 2004
Posts: 11743
Location: Los Angeles, California
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| Posted: Tue Apr 26, 2011 12:06 am Post subject: |
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Morningstar on WFC's 1Q earnings. Note that total loans outstanding declined during the quarter:
| Quote: | Wells Fargo WFC earned $0.67 per share in the first quarter of 2011 and paid out $0.12 per share in dividends. The bank's results were in line with our expectations and show themes that we have seen across the banking industry--improved credit quality, revenue declines from compressed net interest margins, and increasing capital ratios. All in all, we were pleased with Wells' results and are increasing our fair value estimate to account for the time value of money.
Credit quality continues to improve, with lower delinquencies and loan losses. Net charge offs were $3.2 billion this quarter, down 16% from the fourth quarter and 41% from its peak. As early stage delinquencies also continued to improve, we would expect charge-offs to decline throughout 2011--barring a drop in economic activities or a major housing price drop. The lower losses allowed the bank to release $1 billion of reserves this quarter--another trend we expect to continue throughout the year.
A small amount of loan growth was seen on the commercial side of the business, but drops in consumer loans--mainly in the run-off portfolios, meant that total loans declined during the quarter. Coupled with a drop in net interest margin from the sustained low interest rate environment, Wells Fargo reported a drop in net interest income during the quarter. This has been a theme throughout the industry, and we suspect revenue growth will be hard to come by in the near to medium term. Most, if not all, of Wells Fargo's earnings growth will be driven by lower credit costs rather than revenue growth over the next two years.
The bank's earnings continues to translate into impressive capital growth. Wells' Tier 1 Common ratio grew 62 basis points in the quarter to 8.92% despite the increase in the quarterly dividend to 12 cents per share. The bank's Basel III Tier 1 common ratio is estimated to be 7.2%, making it compliant with the base capital requirements laid out. However, that figure will need to grow if the bank is labeled as systemically important--a situation that does not really worry us considering its ability to increase its capital ratios rapidly through earnings. |
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HenryTo
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Location: Los Angeles, California
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| Posted: Wed Jan 19, 2011 9:19 pm Post subject: |
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Morningstar on WFC's 4Q earnings:
| Quote: | | Wells Fargo WFC earned $0.61 per share in the fourth quarter and $2.21 for 2010, showing the strength of its underwriting and core banking business. Results were in line with our expectations, and we are maintaining our fair value estimate. Wells Fargo saw improvements in nonperforming assets and charge-offs during the quarter, allowing it to release $1.5 billion of reserves in the fourth quarter--a trend we think will continue throughout 2011. However, charge-offs are still double the bank's long-term historical average. While we were pleased with the credit improvements, what really excited us was the loan growth in the quarter. This is the first time the loan book has seen expansion in quite some time. As the fragile economic recovery continues, Wells Fargo cou ld continue to expand its balance sheet, as its capital position and earnings power give it a lot of firepower for growth. The bank reported that its estimated Tier 1 common ratio under the Basel III rules would be 6.9%. This is just 10 basis points under the 2019 standards. With the company generating 36 basis points of capital in the quarter while still showing higher loan losses, we have no doubts that Wells Fargo will be able to build its capital to meet standards quickly and raise its dividend substantially when it receives approval to do so from the Federal Reserve. |
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teenwolf41
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Joined: 26 Jul 2009
Posts: 10
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| Posted: Sun Jul 26, 2009 7:07 pm Post subject: |
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| Wells Fargo is getting to a price which is looking enticing. If we can get a market sell off this week and Wells drops near $20 then it might be worth a buy IMO |
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HenryTo
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Joined: 06 Aug 2004
Posts: 11743
Location: Los Angeles, California
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| Posted: Thu Jul 23, 2009 12:20 am Post subject: |
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Morningstar's latest views of WFC's 2Q earnings:
http://quicktake.morningstar.com/stocknet/san.aspx?id=299908
| Quote: | Wells Fargo WFC reported strong earnings of $0.57 per share. The company continues to benefit from its smart acquisition of Wachovia, using those revenues to help absorb losses on its legacy books. Net charge-offs were an annualized 2.11% of total loans, up from 1.54% in the first quarter. This large jump is a result of some deterioration at Wells but mainly because of the addition of losses at Wachovia. In the first quarter, the company had just marked the book to market and did not really have to deal with many losses from Wachovia. As Wachovia's nonimpaired loan book begins to season at Wells, losses will start to roll through and be recognized. The losses at Wachovia are still moderate, and the company was a benefit to Wells' bottom line. Outside of credit quality, Wells Fargo is benefiting from its solid reputation. Deposits increased by $12 billion or about 5% from the first quarter despite the run-off in legacy Wachovia's high-priced CD portfolio. Customers are seeking safe havens, and Wells Fargo stands out as one of the winners.
Wells Fargo also announced that it has earned more than enough to meet its $13.7 billion shortfall under the government's stress test. The company has met this obligation sooner than we anticipated, and this ability simply reiterates the strength of this excellent franchise.
Going forward, we expect earnings will decline in the near term from second-quarter levels as additional credit losses and a reduction in mortgage activity more than offset the benefits of new deposits and merger-related expense efficiencies. Overall the company is operating within our full-year estimates. We are maintaining our fair value estimate. |
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diesel
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Joined: 05 Oct 2006
Posts: 793
Location: Australia & New Zealand
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| Posted: Fri Apr 10, 2009 5:53 pm Post subject: |
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| rffrydr wrote: | Diesel, you're right to perceive the big one-off boosts to earnings in the first quarter with, primarily, the treas. rally when all the money was parked there, and the bond underwriting sparked by, ironically, the collapse of bank lending. Currency and other hedges rounded this out.
However this shows they are alive--something forgotten in the trade. You're looking at 90% sell-offs. The refi boom and pent-up credit demand will stick. As will the yield curve play. As will the short covering by credit longs. That'll get them to the summer....and then the spring homebuying will kick in. By then, and your risk, is that we have an economy.
Best chance at covering is the inevitable stress-test failure. If you want a new sub-prime target you could go with shorting GMAC "bank." But following Novastar's old book, subprime does pay. Wilbur knows this too. |
I tend to agree with what you are saying here. I expect the rally to continue onwards for now. Still letting the past go is hard - human nature and all. The WFC play is strictly short term i.e. fade the gap to feed the family. 
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HenryTo
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Joined: 06 Aug 2004
Posts: 11743
Location: Los Angeles, California
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| Posted: Fri Apr 10, 2009 8:18 am Post subject: |
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Morningstar's latest comments on Wells:
| Quote: | | On Thursday, Wells Fargo WFC announced first-quarter earnings that were impressive, considering the rocky environment; they included the first full-period contribution from recently acquired Wachovia. The bank expects to announce $20 billion of total revenue, $9.2 billion of pretax preprovision profit, and $3 billion of net income, putting it on pace to exceed our cautious expectations for the coming year. That said, we expect commercial loan losses to accelerate across the industry and consumer loan losses to continue throughout the coming year. With the bank's tangible common equity ratio expected to climb above 3% at quart er-end, Wells is catching up on this key metric as earnings boost capital levels postacquisition. We expect investors and regulators to look very favorably at these recent developments. This, combined with additional clarity about the firm's postacquisition earnings power, leads us to lower our fair value uncertainty rating. We're maintaining our fair value estimate. |
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rffrydr
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Location: Sunny California
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rffrydr
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Joined: 30 Oct 2005
Posts: 16939
Location: Sunny California
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| Posted: Thu Apr 09, 2009 8:06 am Post subject: |
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Diesel, you're right to perceive the big one-off boosts to earnings in the first quarter with, primarily, the treas. rally when all the money was parked there, and the bond underwriting sparked by, ironically, the collapse of bank lending. Currency and other hedges rounded this out.
However this shows they are alive--something forgotten in the trade. You're looking at 90% sell-offs. The refi boom and pent-up credit demand will stick. As will the yield curve play. As will the short covering by credit longs. That'll get them to the summer....and then the spring homebuying will kick in. By then, and your risk, is that we have an economy.
Best chance at covering is the inevitable stress-test failure. If you want a new sub-prime target you could go with shorting GMAC "bank." But following Novastar's old book, subprime does pay. Wilbur knows this too.
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Today is the Tomorrow you worried about Yesterday! |
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diesel
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Joined: 05 Oct 2006
Posts: 793
Location: Australia & New Zealand
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| Posted: Thu Apr 09, 2009 7:39 am Post subject: |
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Taking profits on half the position at 19.04 and stop at break even for the rest.
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All cats are gray in the dark. |
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diesel
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Joined: 05 Oct 2006
Posts: 793
Location: Australia & New Zealand
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| Posted: Thu Apr 09, 2009 7:24 am Post subject: |
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I am short WFC at 20.04 in the pre-market. Stop on a close above 21.
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HenryTo
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Joined: 06 Aug 2004
Posts: 11743
Location: Los Angeles, California
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| Posted: Thu Apr 09, 2009 6:32 am Post subject: |
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Definitely not a bad start to banks' 1Q earnings:
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Wells Fargo expects earnings of $3 billion
Thursday April 9, 2009, 8:28 am EDT
NEW YORK (Reuters) - Wells Fargo & Co (NYSE:WFC - News) said on Monday it expects to report first-quarter net income of about $3 billion
It was unclear whether the figures are comparable with those of a year ago, after the bank issued $25 billion in preferred shares to the U.S. government.
It could not immediately be determined whether the $3 billion was before or after dividends paid to the U.S. Treasury.
The bank reported preliminary earnings for the first quarter of about 55 cents a share to common shareholders, compared to 60 cents a year earlier.
A year ago, the bank reported first-quarter profit of $2 billion.
Wells Fargo shares climbed 23 percent to $18.30 in premarket trading . |
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