Mixed Earnings Picture At Buffett's Banks (WFC, USB, BRK-A, V)

This morning’s banking reports from Wells Fargo & Co. (NYSE: WFC) and US Bancorp (NYSE: USB) might as well be called the Warren Buffett banking reports, or the banking earnings for Berkshire Hathaway Inc. (NYSE: BRK-A).  Berkshire Hathaway’s ownership in Wells Fargo & Co. (NYSE: WFC) was over 302 million shares at the end of June 30, which was above the 290+ million shares the quarter before.  The Berkshire Hathaway ownership in US Bancorp (NYSE: USB) was roughly 69 million, effectively the same as the quarter before after it had been raised in Q1.

Wells Fargo & Co. (NYSE: WFC) posted net income of $3.2 billion for the quarter.  This breaks down to a report of $0.56 EPS and $22.47 billion in revenues, compared to Thomson Reuters consensus estimates of $0.37 EPS and $21.6 billion in revenues.  This is a large surprise that it has repeated its earnings performance when some banks have started to normalize with lower earnings.  The company said it extended $169 billion of credit to customers in the quarter, and that checking and savings deposits rose 11% with a 6 basis point gain in net interest margin to 4.36%. Its stockholder equity increased to $122 billion to 10% of total assets, a gain of $23 billion from the year end.  The bank said that current projections show credit losses peaking in 2010, with consumer losses potentially peaking in first half of the year and gradually declining (assuming no further economic deterioration).  Tier 1 capital rose to 10.6% from 9.8% a quarter ago and from 7.8% at the end of 2008.    Tier 1 common equity also rose to 5.2% from 4.5% a quarter ago and from 3.1% at the end of 2008.

US Bancorp (NYSE: USB) reported net income of $603 million.  This breaks down to $0.30 EPS on a 2.2% revenue gain to $4.25 billion.  The Thomson Reuters consensus estimates were $0.27 EPS and $4.12 billion in revenues.  Its results were impacted by three significant items: $415M provision for credit losses, $76M of net securities losses, and a $39M gain from its investment in Visa Inc. (NYSE: V). These items reduced earnings per share by $0.19. The provision for credit losses rose to $1.456 billion (up $61M) as it reflected the current economic conditions, but USB said that credit deterioration has somewhat moderated. The provision for credit losses exceeded its charge-offs by $415M, down from $466M a quarter ago. Net charge-offs were $1.041 billion, up from the $929M in Q2. The caution comes from the notion that US Bancorp said it still expects net charge-offs to remain elevated for the rest of 2009. Non-performing assets were $4.392 billion versus $4.016 billion a quarter ago, driven primarily by the residential construction portfolio and the residential mortgage portfolio that saw an increase in foreclosed residential properties.

Wells Fargo & Co. (NYSE: WFC) closed at $30.46 yesterday and is trading down at $29.90 before the open.  Shares have risen roughly 25% since the June 30 close and have risen a sharp 200% since the March 9 close.  US Bancorp (NYSE: USB) closed at $23.80 yesterday and shares are indicated down marginally at $23.75 before the open.  .  US Bancorp shares have risen about 27% since the June 30 close and they have risen by a sharp 130%+ since the March 9 close.  It is still very much of a mixed picture for the recovery even at the major healthier banks…. and even for Buffett.

For Berkshire Hathaway’s full holdings as of last quarter, that report can be seen here.  You can join our open email distribution list to get updates on top analyst upgrades and downgrades, top day trader alerts, IPO’s, secondary offerings, Warren Buffett and other guru activity, M&A and more.

JON C. OGG