Not bad, Wells, not bad at all

That wasn't so bad at all. Wells Fargo reported earnings today and, unlike many other banks of late, it wasn't that bad. The bank reported total earnings of $1.8 billion ($.53 a share) down from $2.3 billion ($.67) a year ago. Revenues were up 16% year over year reaching a record $11.46 billion. They did take a #3 billion dollar credit provision in the quarter, with half of that provision being added to loan loss reserves. As anticipated most of the credit problems were in the home equity and retail loan portfolios. Given the backdrop of the economy, the Wells Fargo report was really strong across the board. Total loans were up 18% and earnings assets rose 205 in the quarter. Core deposits grew in the quarter rose 65 and the bank increased its capital ratio during the three months. Most surprisingly in light of all the dividend cuts in the banking industry, Wells Fargo announced that it would be increasing its dividend for the 21st straight year.

Wells Fargo is not exempt from the credit and real estate problems. They will have write offs and credit losses in their mortgage and home equity portfolio. There will be some problems with credit cards, auto loans and other personal loans as consumer struggle with a weak economy and inflationary pressures. However, Wells was much better prepared than it s competitors.

Find out how Wells Fargo fared so well when other banks floundered. Read more.

They avoided the alphabet soup of toxic derivative products and applied reasonable lending standards. CEO John Stumpf remarked on this in the press release when he said "We're still affected by the weak economy, but we believe we're one of the best positioned in financial services to grow through this adversity and to build an even stronger company for our team members, customers, communities and shareholders." CFO Howard Atkins expressed it even better in my opinion when he said Wells Fargo continued to profitably build its franchise this quarter, at a time when many in our industry are primarily focused on fixing rather than growing their companies,"

The company is in the catbird seat. They will be able to cherry pick opportunities to expand all of its financial services businesses. Although it has been speculated they might be interested in acquiring troubled rival Wachovia, Management suggested that they were focused on their core markets in the Western United Sates. Indeed, it would seem to me to make little sense for Wells to buy all the problems at Wachovia when they avoided the same mistakes themselves. Even with tightened lending standards and tougher credit underwriting standards, Wells Fargo is going to be able to fill a credit vacuum as other lenders withdraw form the marketplace.

The stock is ahead of itself this morning and I would wait for a pullback but if you have to own a large cap bank stock, Wells Fargo is clearly the one to own. Once again, when buying bank stocks it is best to date the good looking smart sister instead of the super sexy vixen with the sassy convertible.

by Tim Melvin |  07/15/08  |  Stocks: ,

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