All is Far from WellsWells Fargo falls $200m short of its quarterly revenue estimates amid rising mortgage rates that negatively affected banking firms.
- Wells Fargo bled through Thursday morning after reporting lower-than-expected Q1 results. It beat earnings expectations, racking up an EPS of $0.88 to the forecasted $0.80, but revenues of $17.59bn fell short of the $17.8bn analysts called for.
- Revenue was put out with the trash by pesky mortgage rates. Home lending fell 33% from the year prior as mortgage rates hiked amid the Fed’s fight against rising inflation. Mortgage banking only drew in $693m in Q1 according to Wells Fargo – somewhat shy of the $880m expected.
- Prices dropped around 6.5% in Thursday morning trading to their lowest level since October. While it beat on both ends, this was largely thanks to the bank decreasing its credit reserves. The earnings come as the war in Ukraine injects volatility into financial markets, raising concerns for current quarter growth.
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Wells Fargo wipes out the competitionIt looks like this big bank is Wells on its way to a comeback after outshining its counterparts with Q4 earnings and hitting three year highs.
- The stock stampeded 3.68% on Friday to hit its highest price since 2018. It’s been on a tearer this year, seeing gains in all but two sessions and jumping 21% so far.
- It easily topped estimates. EPS of $1.25 on $20.89bn in revenues beat expectations of $1.13 in EPS on revenues of $18.8bn.
- It’s profit jumped a whopping 86% from 2021 to hit $5.75bn, helped by a $875m reserve release that it’d been saving for a pandemic pullback, as well as the $943m sale of its asset management business.
- Interest rate hikes will work in its favor, allowing big banks to charge more for loans and bulk up their profit margins.
- 2022 guidance beat expectations. It sees 8% growth in its net interest income for the year.
- Could Wells Fargo finally be back on its feet? It’s been trying to recover from its 2016 fake accounts scandal, and still operates under a $2tn asset cap imposed by the Fed – could last year's 60% gains mean the worst is over?
Illustration by TradingView
Wells Fargo wins big profits in Q3Big banks gave the S&P 500 its best day since March, and Wells Fargo does its bit by beating expectations for third quarter earnings, reporting a profit increase of over 60% and sending prices edging down.
Wells Fargo reported earnings on Wednesday that had been given a shot in the arm by the release of funds that were saved for Covid-induced credit defaults that never arrived, as well as a promising economic rebound. The bank reported earnings per share of $1.22 on estimates of $0.99 per share, and brought in $18.83 billion in revenue against the $18.35 analysts were expecting. Profits came in up just under 60% and net income hit $5.1 billion, and debit card spending was higher every single week last quarter compared to 2019 levels. The results were given a boost by the release of $1.65 billion in reserves that had been set aside for loan defaults that the bank expected to come (but didn’t) on the back of the pandemic.
The bank this quarter had to pay $72.6 million to settle a lawsuit from the Justice Department, which found the bank to have defrauded hundreds of commercial customers with heightened foreign exchange transaction fees. The bank is still coming back from a $250 million fine from the Comptroller of the Currency (OCC) this time last year for not meeting requirements in an agreement to pay previously harmed customers around this time last year. CEO Charlie Scharf said:
We are a different company today and the operational and cultural changes we’ve made are enabling us to execute with significantly greater discipline than we have in the past. I believe we are making significant progress, and I remain confident in our ability to continue to close the remaining gaps over the next several years, though we may continue to have setbacks along the way.
Four of the largest U.S. banks saw profits grow by double-digits last quarter, thanks to a healthier U.S. economy and a lower number of loans in default. However, the results have been given a helping hand by a bunch of factors that are non-recurring and aren’t likely to improve the future of the bank, and prices lost around 1.5% in the two days after. Investors seemed to realize they may have overreacted though and on Friday prices popped 6.78%, continuing the rally in Monday morning trading. Steven Check, CIO and founder of investment adviser Check Capital Management, is still bullish on the stock, saying:
Things are moving in the right direction. Their charge-offs are extremely low and their expenses continue to come down.
Illustration by TradingView
Buffet says bye byeThree decades after first investing in the bank, Warren Buffet dumps most of his remaining Wells Fargo shares, sending prices down just over 2%.
When we say Buffet, we obvs mean his company Berkshire Hathaway, which has now sold almost all of its stake in Wells Fargo – a staple of the company's portfolio since 1989. A regulatory filing shows that Berkshire has shed 99% of its remaining shares in Wells, with its holding having fallen to just 675,000 shares from 52 million shares at the end of 2020.
Berkshire spent around $12.7 billion on its shares 31 years ago, making Buffet the largest shareholder of the bank with a 10% stake. Wells Fargo is now the fourth-largest bank in the U.S., and Berkshire’s stake eclipsed $30 billion in 2018.
Since then, however, Wells Fargo has been under an asset cap after scandals related to fake accounts and fraud, and Berkshire has been slowly but surely shedding its shares. The drama seemed to all start with a case of bad management – Wells Fargo execs were placing a crazy amount of pressure on lower-level employees to cross-sell products and meet specific quotes, at which point the employees resorted to creating millions of fake accounts for customers without their approval or knowledge, and started moving money around between the real and fake accounts to keep people in the dark. A big oops. The asset cap has effectively limited the bank’s growth until there is a better system in place, and last year Wells Fargo had to pay $3 billion to cover civil and criminal damages.
Buffet stuck to his guns when the revelations first came to light in 2016, saying that Wells Fargo was
A great bank that made a terrible mistake
but alas his commitment has waned significantly since then. Luckily, Wells Fargo seems to be staying on its feet, beating expectations in its first quarter earnings, reporting $1.05 in earnings per share on revenue of $18.06 billion, compared to expectations of $0.70 in earnings per share on $17.5 billion in revenue.
Our work to build the appropriate risk and control environment remains our top priority. This is a multi-year effort and there is still much to do, but I am confident we are making progress, though it is not always a straight line. We are steadfast in our commitment to do this work which should ultimately satisfy our regulatory obligations,
said Wells Fargo CEO Charlie Scharf.