Wells Fargo & Co. (NYSE: WFC) is going to be taking the bank stocks significantly higher, particularly the Direxion Financial Bull 3X Shares (NYSE: FAS). The company is releasing earnings on April 22, but it now has issued guidance that will please even the naysayers on Wall Street. Shares are flying pre-market and are taking up shares of Bank of America Corporation (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM), and even Citigroup, Inc.(NYSE: C).
The bank now expects to report record first quarter net income of approximately $3 billion, or $0.55 EPS, after preferred dividends, including $372 million in dividends paid to U.S. taxpayers on the U.S. Treasury’s Capital Purchase Program investment. The bank also said its business momentum is strong and that it expects operating margins to remain at the top of peers.
Total revenue is expected up 16% to around $20 billion, including another quarter of double-digit revenue growth at legacy Wells Fargo. It might not be an exact comparison, but we show Thomson Reuters (First Call) estimates at $0.23 EPS and almost $19 billion in revenue.
It sees consolidated net interest margin of approximately 4.1% and efficiency ratio of approximately 56%. The net charge-offs are about $3.3 billion, compared with fourth quarter net charge-offs totaling $2.8 billion at legacy Wells Fargo and $3.3 billion at legacy Wachovia. The banking giant also sees a provision expense of approximately $4.6 billion, including $1.3 billion credit reserve build, bringing the allowance for credit losses to $23 billion; and it sees a pre-tax pre-provision profit of approximately $9.2 billion.
As far as whether it is making loans, the bank said that it had $100 billion in mortgage originations, with a 41% increase in the unclosed application pipeline to $100 billion at quarter end. In total, it had approximately $175 billion in loan commitments, mortgage originations and mortgage securities purchases in the first quarter.
Its tangible common equity ratio is now expected to increase in first quarter with tangible common equity above 3.1% of tangible assets at March 31, 2009. The 85% dividend cut will benefit retained earnings by about $1.25 billion in additional common equity per quarter.
Wells Fargo is flying now. Shares are up almost 20% around $18.00. JPMorgan Chase & Co. (NYSE: JPM) shares are up about 5% to $28.85; Citigroup (NYSE: C) shares are up 5% to $2.85; and Bank of America (NYSE: BAC) is up 8% at $7.64. Direxion Financial Bull 3X Shares (NYSE: FAS) is up 12% to $6.93.
JON C. OGG
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