Staggering. Wells Fargo (WFC), who isn’t officially reporting earnings for another two weeks, announced today that the first quarter has been an exceptional one for the bank. Wells Fargo predicted that first quarter earnings will be about 55 cents per share, which is more than double what the consensus estimates had been. In addition, to the success on the bottom line, the bank claims that revenue has risen 16% as well. Wells Fargo is continuing a pattern (Bank of America (BAC), Citi (C), and JP Morgan (JPM)) over the last few weeks of banks signaling to the market that the surprises, at least in this quarter, will be to the upside.
Wells Fargo long considered a West Coast powerhouse has a footprint throughout nearly the entire nation, since their acquisition of Wachovia. This quarters figures were stronger than the previous quarter for non-performing loans and credit-loss provisions as well. Wells Fargo has long been a leader in the mortgage market, and some of the figures from that sector suggest a strengthening as well. Mortgage application rose 41%, and dollar value of those applications were up 64%. The month of March saw a record number of application for Wells Fargo. No doubt the mortgage business is getting a major boost by low interest rate, which benefits from the government’s huge asset purchases of mortgage backed securities. Furthermore, many of the smaller competitors in the mortgage origination field have fallen off, which has allowed Wells Fargo to pick up the slack and gain market share.
Wells Fargo, which is up more than 25% in morning trading, is spurring a rally in the financial sector and the market as a whole. Clearly, these results are much better than anyone expected, and the mortgage business is again looking like a strength rather than a weakness. After the recent run in bank stocks, with many including WFC doubling, we are holding a valuation stance of Fairly Valued. However, if fundamentals continue to improve for WFC and the rest of the banks they are due for an upgrade. The one downside for Wells is the large amount of exposure to commercial real estate, but if you believe that the fear speculation surrounding commercial real estate impending trouble is over blown or already priced in, then Wells Fargo is certainly intriguing.
“Certainly, one thing I was hearing on the floor, everybody was loving Wells Fargo, we were seeing that to the upside and Liz did a great job covering that certainly what I was going to get squeezed. A lot of the hedge funds were shorting Wells Fargo and taken off guard when they saw Wells Fargo moving 30% and more to the upside so the shorts certainly getting squeezed on Wells Fargo. And we talked about the banks being the leaders of the rally over the four weeks and today, certainly, leading the Dow Jones Industrial Average.” Fox Business Network 4/9/2009.