Wells Fargo (WFC) Makes Bank: An Omen?
Wells Fargo (WFC) announced this week they expect 1st quarter profits to come in at $3 billion (or 55 cents per share) on revenue of $20 billion, blowing away analyst estimates of 28 cents per share and sending the stock over 30% higher on the day, according to CNN Money. Wells Fargo CEO John Stumpf announced that business momentum was strong and the Wachovia acquisition has gone very well.
A Good Sign
A large bank managing to turn out record profits in an economy like this is encouraging enough, but the kicker is that Wachovia, one of the hardest-hit banks in the country, contributed almost 40% of this quarter’s earnings. Many skeptics are saying Wells Fargo will probably have to write down more bad loans associated with the Wachovia acquisition, and that may be true. However, you could also make a good case that Wells Fargo actually over-compensated for the losses (a common tactic, known as a big bath) and may release past “losses” back into earnings in the future, boosting earnings and the stock price along with it.
Enthusiasm for bank stocks soon spread as other large banks such as Citigroup (C) also got a boost. It looks like the good news has convinced many investors the worst is over and better times are just around the corner. At the very least, the rebounds is an indication more investors than not believe we’ve reached a bottom for bank losses. That’s not to say the recession has reached a bottom, however, as unemployment continues to rise as the economy sheds jobs. But at least the light is at the end of the tunnel as far as billion-dollar write-offs are concerned.
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