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Wells Fargo

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's outlook at its investor day Wednesday was bearish and may lead to "modest downward pressure on consensus EPS estimates over time," according to a Keefe Bruyette & Woods report published Thursday.'

"We certainly did not see anything in the investor day presentation that would move consensus estimates higher," wrote KBW analyst Fred Cannon.

Cannon estimates Wells will earn $3.50 per share in 2013 versus the $3.68 consensus. He also argues 2013 revenues will be below the total for 2012.

If interest rates continue at current low levels, Wells Fargo management said it would return $1.30 for every dollar of assets on its balance sheet, while posting a 12% return on equity. In a "normalized" higher interest rate environment, Wells Fargo's return on assets would increase to 1.60%, with ROE climbing to 15%.

"In general, we would consider these targets to be more conservative than the previous 1.50% aspiration ROA target given at the previous investor day," Cannon wrote, adding he believes "management was realistic about the company's earning potential in the difficult rate environment."

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On the positive side, Cannon came away impressed by the depth of experience of Wells Fargo's management team and its approach to risk management in the wake of recent trading losses at

JPMorgan Chase

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He notes the bank has "a much smaller amount of notional derivatives outstanding" and manages risk within each individual business unit.

"Wells management said straight-out that the company does not have a

chief investment office akin to JPM," Cannon wrote.

Cannon also noted that Wells is still looking for acquisitions in areas such as wealth management, insurance brokerage, and "asset acquisitions from European banks or elsewhere," however he believes "it is difficult to see Wells doing any large deal anytime soon that is really going to move the needle for earnings."

The mute outlook for Wells will be a disappointment to bulls on U.S. megabanks, who have turned to Wells as a last hope now that JPMorgan's trading losses have knocked that institution off its pedestal.


Written by Dan Freed in New York


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