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Wells Fargo Earnings preview
Wells Fargo will report earnings on Wednesday and it is expected that results will continue to be affected by the mortgage and credit mess. The bank took write downs in the second half of last year of $2.78 billion and more are expected in the first quarter. They will also have to increase loan loss reserves as borrowers continue to fall behind and default on mortgage loans. Many also expect the auto loan portfolio to begin to show the impact of the weakening economy. The average expectation is for Wells Fargo to earn $.57. The range of estimates form the 23 analysts who follow the bank is much wider than normal with the low end of the range at $.45 and the high estimate coming in at $.67. In the comparable period a year ago the bank earned $.66. Reflecting the continued uncertainty in the financial markets, three analysts have reduced their estimates for the bank in the last 90 days. The consensus expectation is for revenues of $10.41 billion.
So far, Wells Fargo has dodged the worse of the mortgage market turmoil. They did not invest or trade in many of the exotic mortgage and credit backed instruments that forced competitors such as Citigroup to take large losses. They do however have tremendous exposure to the housing and consumer markets and investors will be watching closely to see how the loan portfolio performed in the first quarter. The bank has the largest exposure to the troubled California marketplace with 36% of its home equity exposure in that area. They have tightened lending standards in the California market in recent months but they will probably have to take additional reserves to protect against losses in that state.
Wells Fargo is one of the few major banks expected to report profits in the first quarter. The stock has held up fairly well, currently trading over $27 a share. That could change if they should have a disappointing report, or like Wachovia earlier in the week reported a loss from mortgage and credit exposure.
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