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Big Banks: Financial Winners

On the positive side, higher long-term rates will ultimately translate to widening net interest margins. Higher long-term rates also mean that Wells Fargo will report rising valuations for its mortgage servicing rights.

Wells Fargo's shares have returned 27% this year, following a 27% return during 2012. The shares trade for 11 times the consensus 2014 EPS estimate of $3.91. The consensus 2013 EPS estimate is $3.71.

Citigroup analyst Keith Horowitz has a neutral rating on Wells Fargo, but on Sunday raised his price target for the shares to $45 from $41, based on his upward revisions of earnings estimates, "to account for the benefit from higher rates as a steepening yield curve eventually works its way into net interest income."

Horowitz raised his 2013 EPS estimate for Wells Fargo by a nickel to $3.80, raised his 2014 EPS estimate by a dime to $4.05, and raised his 2015 EPS estimate by 20 cents to $4.40.

"We see core mortgage production revenues falling 15% q/q in 2Q13, on narrower gain-on-sale margins," Horowitz wrote in a note to clients. Wells Fargo saw only a slight sequential decline in mortgage revenue during the first quarter, because it books gains-on-sale when loans are closed, rather than when a new loans rate is locked-in.

"We believe the spread compression in 1Q will catch up to WFC in 2Q and we see gain-on-sale margins falling 25% q/q, partly offset by a 4% q/q increase in originations, in line with industry forecasts," Horowitz wrote.

WFC Chart WFC data by YCharts

Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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