This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Wells Fargo Record Earnings Loom, but Growth Stays Tied to Economy

Stocks in this article: WFC JPM C BAC

Updated to reflect opening share prices and Smead Capital comment

NEW YORK ( TheStreet) -- Wells Fargo (WFC) may post a 15th consecutive quarter of earnings-per-share growth, surpassing consensus expectations of a slight decline, as investors in the bank await signs of rising economic growth in the U.S.

Such a scenario indicates that Wells Fargo still has room to improve its bottom line and drive overall EPS growth, even in an economic environment where expectations of job creation, gross domestic product growth and activity in the housing market have fallen sharply in recent months.

After a few quarters of strong mortgage origination revenue, Wells Fargo is poised to see a significant decline in activity as a mid-quarter surge in mortgage rates put some home-buyers and those seeking to refinance their loans on the sidelines. Meanwhile, downward trends to the labor market and mixed data on GDP growth indicate that the bank is still operating in a weak economic environment that is depressing small business formation, consumer loans and housing activity.

Consensus Wall Street forecasts compiled by Bloomberg indicate that Wells Fargo will report revenue of $21 billion, a drop sequentially and from year-ago levels. Those forecasts also indicate Wells Fargo may see its earnings fall sequentially, after the bank reported a record 98-cents a share in diluted second quarter EPS.

While consensus may indicate a poor quarter for Wells Fargo, some expect the bank to continue its bottom line earnings growth as credit quality improvements, rising net interest income and higher mortgage servicing revenue offset expectations of declining housing market activity.

"We do think that Wells Faro can continue to show sequential growth in their earnings per share," Marty Mosby, a large-cap banking analyst with Guggenheim Securities, said in a Wednesday telephone interview.

Mosby forecast Wells Fargo's mortgage origination activity will drop substantially from second-quarter levels, but that it will be offset by expense reductions and other parts of the bank's business such as its credit quality.

Wells Fargo will also continue to buy mortgage securities, in an effort to deploy the bank's excess liquidity into yield-earnings assets, according to Mosby.

Whether or not Wells Fargo can find a way to grow its EPS will certainly be the headline coming out of the bank's third quarter results, due at 8 a.m. ET on Friday.

"We expect that Wells Fargo will put together another good quarter," Tony Scherrer, Director of Research and Co-Portfolio Manager at Smead Capital, said in a telephone interview.

Wells Fargo continues to grow its market share in key banking functions such as mortgage lending, wealth management and consumer deposits. As a result, many expect that the bank will show strong earnings leverage to consistent economic growth in the U.S.

"We still have years ahead for Wells Fargo to capitalize on a trend in home starts," Scherrer said of the bank's about share of the U.S. mortgage market and current below-trend home starts figures. Even with mortgage originations poised to fall about 30% from the second quarter, Wells Fargo remains at an advantageous position. "The secular trend is far more important than a single quarter," Scherrer added.

Wells Fargo shares were rising over 1% to 41.39% in early Thursday trading. Shares have gained nearly 20% year-to-date, excluding dividends, outperforming the S&P 500.

1 of 2

Select the service that is right for you!

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!


DOW 17,660.59 +303.72 1.75%
S&P 500 2,045.11 +32.22 1.60%
NASDAQ 4,717.78 +73.4680 1.58%

Brokerage Partners

Rates from

  • 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