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Wells Fargo reported better than expected Q1 earnings before the bell on Wednesday after JPMorgan and Goldman Sachs. $WFC results were helped by a net benefit of $1.05 billion from reserve releases. Shares of the bank rose 5.5%.

Wells Fargo Robbery

Wells Fargo & Co NYSE: WFC Reported Earnings Before Open Wednesday

$1.05 Beat $0.69 EPS and $18.06 Beat $17.50 Billion Forecast in Revenue 

Earnings

WFC reported $1.05 in earnings per share versus 70 cents a share expected, according to Refinitiv. Revenue was $18.06 billion versus $17.5 billion expected. Wells Fargo earnings were helped by a net benefit of $1.05 billion from reserve releases.

Banks shored up their credit loss reserves last year as the pandemic pulled the U.S. economy into a sharp recession, but the financial firms have started to release those reserves as the recovery takes shape.

Wells Fargo Consensus Expectations

Expectations are for EPS of $0.69, on revenue of $17.50 billion.

Wells Fargo is expected to report first-quarter EPS of $0.69 (up from $0.01 a year ago) on revenue of $17.5 billion (down 1.2% year over year). Looking ahead for the second quarter, analysts estimate EPS of $0.74, up from a loss per share of $0.66 last year, on revenue of $17.31 billion (down 2.9% year over year). For the 2021 fiscal year, the current estimates call for EPS of $2.93 and revenue of $69.4 billion.

Exposure to the Archegos Capital Management implosion will be a key element in the conference call, Wells Fargo said late last month that it had been able to unwind its position without taking a loss. Likewise Goldman Sachs called its loss related to Archegos "immaterial".  Wells Fargo's still has a continuing regulatory cap on the bank's assets imposed by the Fed from previous scandals. Given that reputational risk hangs over the the bank after a series of scandals that included creating fake customer accounts.

 Big Banks Kick Off First Quarter 2021 Earnings Season

The bank rally has been fueled by expectations for the economy reopening and infrastructure spending.  The new surge in home prices has also buoyed optimism for the mortgage business and banks profits thereto.

Earnings

 

Wells Fargo & Co NYSE: WFC

Market Reaction Close $41.99 $2.23 (+5.61%)

Highlights

Our results for the quarter, which included a $1.6 billion pre-tax reduction in the allowance for credit losses, reflected an improving U.S. economy, continued focus on our strategic priorities, and ongoing support for our customers and our communities,” CEO Charlie Scharf said in the earnings release. “Charge-offs are at historic lows and we are making changes to improve our operations and efficiency, but low interest rates and tepid loan demand continued to be a headwind for us in the quarter.”

WFC Earnings Q1 21

“The demand across most commercial client segments has been pretty weak, and it seems to have stabilized over the last couple of months ... we do really expect to see that commercial banking demand start to pick up as the economy picks up,” Santomassimo said.

Stock Buybacks

Wells Fargo and several other big U.S. banks including Citigroup and JP Morgan were given permission to resume share buybacks in the first quarter of 2021 by the Federal Reserve. The Fed conclused that certain banks capital buffers are sufficient to withstand potentially hundreds of billions of dollars in loan losses related to the Covid-19 pandemic and economic downturn.

Wells Fargo’s board approved an increase in the bank's authority to repurchase common stock by an additional 500 million shares, bringing the total authorized amount to 667 million common shares. 

Wells Fargo is still trying to recover from the fake account scandal surrounding its sales practices, in which employees in its consumer banking division created fake accounts amid a high-pressure sales environment. More issues surrounding the bank's practices continue to surface. Wells Fargo in February 2020 agreed to pay $3 billion to settle criminal charges and a civil action stemming from its widespread mistreatment of customers in its community bank over a 14-year period.

Source: WFC, AlphaStreet

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