Wells Fargo Earnings Top Street Estimates
Wells Fargo (WFC) reported net income rose 3% to a record $3.34 billion in the third quarter, thanks to its merger with Wachovia, the bank said. Also, improving credit conditions managed to offset a 7% fall in revenue.
In the third quarter, Wells Fargo posted earnings of 60 cents per share, up from 56 cents for the same period last year. Analysts had expected earnings of 55 cents a share. "Record earnings in the third quarter reflect the success of the Wachovia merger and the benefits of Wells Fargo's steady commitment to our core business of helping customers succeed financially," said Chairman and CEO John Stumpf.
"Credit losses continued to trend down, with net charge-offs declining 9% linked quarter, and down $1.3 billion, or 24%, from the peak in fourth-quarter 2009," said Chief Financial Officer Howard Atkins. Provisions for credit losses dropped 44% from $6.11 billion last year to $3.45 billion.
The Big Question: Foreclosures
However, Well Fargo revenue declined 7% to $20.9 billion, compared to $22.5 billion in third-quarter 2009. That drop was due to smaller net debt and equity security gains, PCI (purchased credit impaired) loan resolution income and the impact from the overdraft regulation changes. Some businesses, though, generated double-digit annualized revenue growth, including asset management, mortgage banking, brokerage, commercial banking, commercial mortgage servicing, commercial real estate and debit card.
Still, if Bank of America's (BAC) earnings yesterday are any indication, what investors would really like to understand is how Wells Fargo is faring in regard to foreclosure and mortgage issues.
With all 50 states investigating the matter of sloppy underwriting and faulty foreclosure processes, investors are worried. And since because the foreclosure crisis also affects mortgage-related investments, the matter clouded BofA's reasonably good numbers, and its shares ended the day 4.4% lower.
"With respect to recent industrywide foreclosure issues, there are several important facts to know about Wells Fargo," Stumpf said. "We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate. For these reasons, we did not, and have no plans to, initiate a moratorium on foreclosures."
Whether this alleviates investors concerns, especially after Wells Fargo has already agreed to pay several states to resolve allegations that Wachovia deceptively marketed adjustable-rate mortgages, remains to be seen.