In the latest round of earnings season, Wells Fargo & Co (NYSE: WFC) posted higher than expected quarterly earnings. The fourth largest US bank was buoyed by declining losses on commercial and consumer loans, a similar story echoed by competitors Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), and Bank of America (NYSE: BAC).
It seems that the worst is over in terms of loan write-downs, as fewer loans are turning bad and new loans are being issued with higher standards. Wells Chief Financial Officer Howard Atkins commented: “We believe credit quality has indeed turned the corner with net charge-offs declining to $4.5 billion, down 16 percent from first quarter and down 17 percent from last year’s peak quarter, and we expect this positive trend will continue over the coming year.”
As the tide of loan losses seems to have finally subsided, there is a new risk on the horizon: consumer confidence. As the Obama administration is signing into law the new financial reform bill, investors and firms have yet to fully analyze the impact on the profitability of the firms going forward. Minneapolis based US Bancorp Chief Executive Richard Davis commented: “A number of provisions within this legislation will impact our company by either lowering revenue, increasing expense and/or raising capital requirements.”
Gary Townsend, President and CEO of Hill-Townsend Capital is optimistic on Wells, which is continuing to integrate the Wachovia chain into the portfolio, opening up new markets and opportunities. Townsend commented: “The story at Wells Fargo was a big improvement in credit, net interest margin expansion. Revenues in a difficult quarter were in line with the previous quarter and of course they beat on the bottom line.”
Wells Fargo reported second-quarter earnings of $3.06 billion, or 55 cents a share, compared with $3.17 billion, or 57 cents a share for the same period last year. According to Thomson Reuters, analysts on average expected 48 cents a share.
