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Wells Fargo Excels at the Only Trade That Matters to Investors

Wells Fargo and Berkshire Hathaway shareholders may not need to fear a similar buyback outcome as JPMorgan. Increasing price to book value buyback authorizations may simply reflect a recovering stock market and improving investor sentiment.

For Wells Fargo investors, they may also be comforted by the bank's focus on increasing its dividend.

"Our 2013 Capital Plan that we submitted to our regulators last week requests an increase in capital distribution to shareholders as compared to our 2012 plan," said Sloan, on a Friday earnings call.

As Wells Fargo shows strong returns on its buyback trade, a criticism that the bank is involved in a type of complex proprietary trading rings hollow.

In an article, The Atlantic found a $377 million trading loss Wells Fargo incurred in 2011 on a collateralized debt obligation as evidence the bank has hidden proprietary trading bets. "Whatever the reason, Wells Fargo's massive CDO-derivatives loss was a multi-hundred-million-dollar tree falling silently in the financial forest," wrote The Atlantic.

In fact, the loss was disclosed as stemming from securities picked up in its 2008 acquisition of Wachovia and not some rogue CDO trading desk. "The loss was associated with the resolution of a legacy Wachovia position that settled during the year," Wells Fargo said in its annual report. "Prior to 2008, we engaged in the structuring of CDOs... We have not structured these types of transactions since the credit market disruption began in late 2007," the bank added.

In 2012, Well Fargo reported a $78 billion increase in the earnings assets it holds on its books, rising to $1.2 trillion. However, the interest earned on those assets, which are spread across Treasuries, trading assets, mortgage backed securities and various types of commercial and residential loans, fell from 4.41% to 3.96% over the course of 2012.

Overall, Wells Fargo's net interest margin, after accounting for funding costs, fell from 3.89% to 3.56% in 2012. A greater than expected 10 basis point decline in the fourth quarter raised some investor concern.

For more on Wells Fargo's earnings, see why the bank's investors will need to show patience.

Here's a look at why any of Wells Fargo's earnings troubles were hidden in plain sight ahead of the Friday report.

-- Written by Antoine Gara in New York
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