Lower Margins on Interest Cool Wells Fargo Shares

Wells Fargo & Co. (NYSE: WFC) reported fourth-quarter 2012 and full-year results this morning. The bank reported quarterly diluted earnings per share (EPS) that totaled $0.91 on revenue of $21.9 billion. In the same period a year ago, Wells Fargo reported diluted EPS of $0.73 on revenue of $20.6 billion. This morning's results also compare to the Thomson Reuters consensus estimates for EPS of $0.89 and $21.3 billion in revenue.

For the full year, the bank reported EPS of $3.36 on revenue of $86.1 billion, compared with 2011 EPS of $2.82 on revenues of $80.9 billion.

The bank's CEO said:

Wells Fargo did not offer any guidance in its announcement, but the consensus estimates for the first quarter of 2013 call for EPS of $0.87 on revenues of $21.2 billion. For the full year, the EPS estimate is $3.35 on revenues of $85.7 billion.

Quarterly results include a $644 million pretax charge to cover the bank's share of the recent $8.5 billion settlement related to foreclosure practices.

The higher profit at the bank was largely due to lower contributions to reserves to cover bad loans and a boost in mortgage fees. Historically low interest rates, however, chopped net interest margin from 3.9% a year ago to 3.6% this year.

Credit losses totaled $9 billion in 2012, down 20% from losses of $11.3 billion in 2011, and nonperforming assets dropped by 6%.

The company's shares are down about 1% in premarket trading this morning, at $35.05 in a 52-week range of $28.77 to $36.60. Thomson Reuters had a consensus analyst price target of $38.90 before today's report.

As we noted yesterday in our look at bank earnings, implied upside on bank stocks is below 10%, which means that results will have to blow past estimates or investors will not be satisfied. Wells Fargo clearly beat estimates, but not by enough to put a jolt into buyers.

Filed under: 24/7 Wall St. Wire, Banking & Finance, Earnings Tagged: WFC