Wells Fargo & Company (NYSE: WFC) is set to report earnings early on Friday morning. We voted this bank as the safest of the money-center banks before and that still stands. This is the only one of the four major money center banks that is trading above its book value. At $35.25, the 52-week range is $28.77 to $36.60. Analysts are still looking for about 10% upside here to the consensus price target of $38.92 and the common stock dividend shows a yield of about 2.5%. Thomson Reuters has estimates of $0.89 EPS and $21.29 billion in sales.

Rival JPMorgan Chase & Co. (NYSE: JPM) currently has only a very slightly higher dividend yield at closer to 2.6% and it is back up closer to its 52-week high and well above the level from when the London Whale trades surfaced. We do expect that the reaction to Wells Fargo will spill over into Bank of America Corporation (NYSE: BAC) and into Citigroup, Inc. (NYSE: C). Normally we would not mention the other banks but these have rallied handily from a year ago and they may be priced for perfection. We would note that Goldman Sachs recently downgraded Wells Fargo to Hold from Buy based upon that performance and valuation argument.

We will also hear whether or not Berkshire Hathaway Inc. (NYSE: BRK/A) and Warren Buffett added even more shares as it generally has. Our guess is that Buffett still added shares.

Be advised that the banks all performed so well in 2012 and they have on average less than 10% implied upside to the Thomson Reuters consensus price targets. The banks will have to handily beat expectations and they will have to show a rekindled improvement in credit metrics. Otherwise there should be a “sell the news” reaction seen. If the banks meet or slightly beat estimates then we would expect, then the analysts have to decide whether or not they say banks are fully valued or whether they want to raise their price targets.

There is one other possibility here. We find it hard to fathom because the market has not been this way for years. That alternative scenario is one where the money-center banks all trade back above their intrinsic book values. Again, Wells Fargo trades above its book value, which it reported as being as follows for the past four quarters according to Ycharts.com:

• Sept. 30, 2012  $27.22
• June 30, 2012   $25.92
• March 31, 2012  $25.53
• Dec. 31, 2011   $24.70

One last note is on the dividend. We may be one quarter away before a dividend hike is formalized but Wells Fargo is still only paying $0.22 per share per quarter against its peak dividend of $0.34 per share per quarter back at the peak before the recession. If Wells Fargo gets back to its historic high payouts at some point that would magically yield 3.85%.

When the media tells you each and every quarter that this is perhaps the most important earnings season ever, you need to understand that you are generally being fluffed up for viewership and readership. But… This will be at least one of the most important earnings seasons because these banks are all up so much. If the banks disappoint on earnings there is going to be some payback. Stay tuned.

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