This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Wells Fargo Earnings and 'Green Shoots'

Stocks in this article: BACWFCCJPM

With each passing quarter, Wells Fargo seems to record over $500 million in gains from improvements to its $800 billion portfolio of mortgage, auto and commercial real estate loans. Investors would now have a hard time differentiating the quality of those loans from those made in 2006, before the housing market cracked the U.S. economy.

Prior to second-quarter earnings, meanwhile, Wells Fargo was sitting on over $11 billion in unrealized gains to its securities portfolio, helping the bank to shore up its balance sheet and capital ratios amid Fed stress testing and oversight on the payout of dividends.

As the Fed now considers easing its unprecedented efforts to hold long-term interest rates down, those such rate-of-change benefits will disappear as a factor driving Wells Fargo's earnings.

Long Live Green Shoots.

Put simply, Wells Fargo needs imminent green shoots of economic growth, mortgage demand and business hiring and for those plantlets to flower into a full-fledged recovery.

"Two years from now, if people are excited about Wells Fargo, it's going to be about the huge market share they have on Main Street," Bill Smead, Chief Investment Officer of Smead Capital, said in an interview ahead of the bank's earnings.

Smead sold Wells Fargo shares in late 2008 and early 2009 amid a worsening of the financial crisis and uncertainty over the government's intervention in the banking sector. In 2009, the fund rebuilt its position in Wells Fargo starting at about $17 a share on an expectation the bank could earn about $4 a share in a weak economy. Now Smead holds Wells Fargo shares on the belief earnings can move higher if a real recovery emerges.

After-tax profits of $7 a share and a stock multiple of 11 times earnings in a few years' time would drive similar stock gains to those posted from 2009 to present. If green shoots once again disappoint, however, Smead and a cohort of bullish Wells Fargo investors such as Warren Buffett would be in for a rough ride.

Wells Fargo, for its part, continues to make the case to investors its business is diversified enough to benefit from both an easing of the financial crisis and an incipient recovery.

Chief executive officer John Stumpf on Friday said the bank saw its strongest post-crisis housing market activity in the second quarter. Stumpf also reiterated a well-worn refrain that the bank is not dependent on any one of its businesses for growth.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,828.24 +0.49 0.00%
S&P 500 2,067.56 -5.27 -0.25%
NASDAQ 4,791.63 +4.3130 0.09%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs