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TheStreet Open House

Wells Fargo Earnings and 'Green Shoots'

For now, Wells Fargo's numbers when it comes to the U.S. economy are showing the barest of green shoots.

The bank's mortgage banking income was flat for the quarter at $2.8 billion, and its residential mortgage originations grew a paltry 2.6% to $112 billion. While deposits continued to grow, commercial mortgage loans declined in the quarter.

Overall, Wells Fargo's total loans grew 0.24% to $802 billion, a perfect sign for where the business stands heading into the second half of 2013 and 2014. Most lending businesses did post double-digit growth when compared to year-ago levels.

Stumpf, unsurprisingly, is of the belief the bank can improve upon its numbers, and he highlights that a complicated interplay between economic data and decisions by the Federal Reserve on interest rates will play to the bank's benefit.

If Warren Buffett asked shareholders to make the case for betting against his company, Berkshire Hathaway, the "Oracle of Omaha" would likely have a similar difficulty refuting Stumpf's optimism.

Wells Fargo has seen its market share across mortgage lending, retail deposits, wealth management and investment banking grow significantly in post-crisis years. It now is a far better barometer of the U.S. financial system -- Wall Street and Main Street -- than Citigroup (C), once the world's largest bank by assets.

Financial moves like the bank's 30-cent quarterly dividend and its billions in annual share repurchases are also likely give Wells Fargo investors such as Buffett a margin of safety if the bank did underperform in coming quarters.

Beware Green Shoots?.

Sherman, the DoubleLine portfolio manager spoke of green shoots within the context of today's investor monomania with the Fed's tapering of bond purchases. In both instances, Sherman said, the hype will wind up proving to be a disappointment.

In fact, as a fixed income portfolio manager Sherman is betting on that fact and a belief weakness in the U.S. and global economies will constrain rising interest rates. A rate surge at the end of the second quarter led to the worst performance in bond markets since 1994.

While Sherman believes Fed taper talk will fizzle, his biggest risk actually may be a re-emergence of discussion about green shoots.

For Wells Fargo investors, green shoots are their best hope.

RELATED STORIES:

Wells Fargo's Rising Earnings Defy Wall Street Once More

JPMorgan, Wells Fargo Shuffle Riskiest $38 Billion Amid Bond Boom

Buffett Buyback Math Key to Post Stress Test Bank Earnings

-- Written by Antoine Gara in New York

-- Written by Antoine Gara in New York

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