Banking, finance, and taxes

Why Wells Fargo Is Not Out of the Woods Yet

Chris Lange

Published: January 15, 2019 11:45 am

Last Updated: January 31, 2020 2:00 am

When Wells Fargo & Co. (NYSE: WFC) reported its fourth-quarter financial results before the markets opened on Tuesday, the bank said that it had $1.21 in earnings per share (EPS) and $21.0 billion in revenue. Consensus estimates had called for $1.19 in EPS and revenue of $21.75 billion. The same period of last year reportedly had EPS of $0.97 on $22.05 billion in revenue.

During the latest quarter, average deposits totaled $1.3 trillion, down $42.6 billion, or 3% year over year. Average loans totaled $946.3 billion, which was down $5.5 billion, or 1%.

Noninterest income in the fourth quarter was $8.3 billion, down $1.0 billion from third quarter 2018. Fourth-quarter noninterest income included lower market sensitive revenue, mortgage banking fees and trust and investment fees, partially offset by higher other income.

In terms of its segments, Wells Fargo reported as follows:

• Community Banking had revenue of $11.46 billion, a decrease of 2% year over year.
• Wholesale Banking had revenue of $6.93 billion, a decrease of 6.9%.
• Wealth and Investment Management had revenue of $3.96 billion, a decrease of 8.5%.

Capital in the fourth quarter exceeded Wells Fargo’s internal target, with a Common Equity Tier 1 ratio (fully phased-in) of 11.7%, down from 11.9% in the prior quarter.

Wells Fargo reported a book value per common share of $38.06 and a tangible book value per common share of $31.86, which compares to the prior quarter’s numbers of $37.55 and $31.49, respectively.

Chief Financial Officer John Shrewsberry commented:

Wells Fargo reported $6.1 billion of net income in the fourth quarter. Compared with the third quarter, we grew both loans and deposits and credit performance remained strong. In addition, our effective income tax rate was lower compared with the prior quarter, and we maintained solid capital levels even as we reduced our common shares outstanding. We continued to have positive business trends in the fourth quarter with primary consumer checking customers, consumer credit card active accounts, debit and credit card usage, commercial loan balances, and loan originations in auto, small business, home equity and student lending all growing compared with a year ago. Our focus on reducing expenses enabled us to meet our 2018 expense target, and we are on track to meet our 2019 expense target as well.

Shares of Wells Fargo were last seen down over 2% at $47.14, in a 52-week range of $43.02 to $66.31. The consensus analyst price target is $57.94.