Wells Fargo Destroys Earnings Estimates

Wells Fargo (WFC) is still a TARP bank, and there are serious concerns about what it swallowed when it bought Wachovia, but the bank just destroyed earnings, as EPS of $.56 came in well ahead of expectations of $.33 per share.

Revenue of $22.4 billion was ahead of $21.3 billion.

Shares initially moves up on the news, but are now drifting a little lower.

Some comments from the release on credit quality:


Based on average Q4 2008 Wells Fargo assets only, excludes Wachovia.

  • Reduced non-strategic/liquidating loans by $5.7 billion in the quarter
  • FAS 166/167 expected to add approximately $28 billion to risk-weighted assets upon adoption in 2010

Current projections show credit losses peaking in 2010, with consumer losses potentially peaking in first half of the year and gradually declining, absent further economic deterioration

  • Growth in nonperforming loans and net charge-offs slowing as of third quarter, for consumer and commercial portfolios
  • Credit performance of recent vintage legacy Wells Fargo consumer portfolios improving, largely the result of proactive credit management over past two years
  • 90 days past due and still accruing levels flat with second quarter; consumer 90 days past due and still accruing declined from prior quarter
  • Significantly smaller credit card portfolio than large bank peers
  • Pick-a-Pay portfolio currently estimated to have lower life-of-loan losses than originally estimated, driven in part by extensive and successful loan modification efforts

As for Wachovia, the company says:

  • Legacy Wells Fargo commercial and commercial real estate portfolio well underwritten and diversified; Wachovia commercial and commercial real estate portfolio marked down at merger close at end of last year
  • Legacy Wells Fargo loss rate of 3.37 per cent, below large bank peers; overall loss rate of 2.50┬áper cent reflected benefit of purchase accounting on Wachovia loan portfolio; combined losses less than half of Company’s quarterly PTPP

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