Business

Wells Fargo Reports Record $3B Profit

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And there was much rejoicing…

From MarketWatch:

NEW YORK (MarketWatch) — Wells Fargo & Co. said Thursday that first-quarter earnings will surge to a record $3 billion, well ahead of analyst forecasts, as loan losses and provisions dropped from the previous difficult quarter and its mortgage business thrived.

Wells shares jumped 22% as the bank also noted its Wachovia acquisition is exceeding expectations and reported another quarter of double-digit revenue growth.

Wells said first-quarter net income will be roughly $3 billion, or 55 cents a share, after paying dividends on preferred securities, including $372 million to the Treasury Department. Analysts surveyed by FactSet Research expected profits of 31 cents a share on average.

And, according to Credit Writedowns, there could be some money to be made here…

I see financial services companies shedding troubled assets, not marking other assets to market and having an enormous margin spread due to ridiculously low interest rates. To me, this is a huge buy signal. Last week, I thought a small position in out-of-the-money calls on BofA or Wells was a good idea before Wells gapped up this morning (I still think Citi is dead money). This is now less of a good risk-reward opportunity. But, don’t think Wells is alone in expecting a monster quarter here. Could we see the same at JPM or BAC? BAC has a huge tax dodge from its Countrywide acquisition so unless they haven’t finished with monster surprise writedowns, I expect a good number there as well and that looks like the best play in the space right now (despite a 20% rally today).

Still, while profits are all well and good, we still need these banks to start lending again.

  • TerenceC

    I hope this isn’t just a dead cat bounce. There is also the banking health checks coming to a close and the expectation is 3-4 large banks may be shuttered. In the June/July timeframe there is a huge mortgage reset coming which could could further depress the banking sector.

    The expectation right now is that we’ll have moderate growth in the market until that time and then we will test the February lows through the Fall/end of year. Having said that however, if you have a 5 to 10 year time frame now is great time to buy. Multiples have been crushed and many stocks are at 10 even 20 year lows. The dollar exchange rate abroad is favorable and many US manufacturers are very competitive over seas as a result.

    Geithner and his posse are also looking at 2 types of economic health measurement – one focuses on the stock market and the other focuses specifically on domestic manufacturing and associated industries in the domestic market. It’s impossible to tell what’s going to happen, and I still don’t trust the accounting for these large banks – there’s just too much off the books. I have a good friend that owns a cardboard and box manufacturing facility. He swears that his industry is the best prognosticator for US economic activity – and for what it’s worth his business is slow right now.

  • bob in fla

    Wells Fargo reporting a record profit is one thing. The real question is, are they solvent? (Probably) One item no one is mentioning is that Wells buying of Wachovia cost them virtually nothing since they were able to take a huge tax writeoff because Paulson changed the rules just before Wells made their final offer. So of course they show a profit, especially when considering the spread between what Wells is paying in interest opposed to what they charge their loan customers.

    BoA, Citi, & JP Morgan may also show a profit, but as CreditWritedowns observes, Citi is almost certainly insolvent. So what makes any of these banks a buy at this point, other than the possibility of short term profit taking? Just one of them going bust will adversely affect the entire financial system. That rejoicing you speak of is Animal Spirits, not rational thinking.

  • bob in fla

    Wells Fargo reporting a record profit is one thing. The real question is, are they solvent? (Probably) One item no one is mentioning is that Wells buying of Wachovia cost them virtually nothing since they were able to take a huge tax writeoff because Paulson changed the rules just before Wells made their final offer. So of course they show a profit, especially when considering the spread between what Wells is paying in interest opposed to what they charge their loan customers.

    BoA, Citi, & JP Morgan may also show a profit, but as CreditWritedowns observes, Citi is almost certainly insolvent. So what makes any of these banks a buy at this point, other than the possibility of short term profit taking? Just one of them going bust will adversely affect the entire financial system. That rejoicing you speak of is Animal Spirits, not rational thinking.

  • gerryf

    My feelings (fears) exactly. Wells can easily post a “profit” if it continues to over-valuate all of the toxic assets on its books, but the bottom line is the whole house of cards comes tumbling down the minute we look a little deeper.

  • http://www.poligazette.com Jason Arvak

    One reason for this may be that Wachovia was fundamentally a sound bank. It was basically a rumor campaign that caused a modern-day version of a run and forced a hasty sale that is working to Wells Fargo’s benefit now.

    One of the least reported dynamics of this whole financial crisis is the degree to which the process is as much psychological and financial. That indicates a psychological component to the solution which the President, to his credit, appears to be acting upon in recent weeks.