NEW YORK ( TheStreet) -- As it turns out, Wells Fargo ( WFC), the Main Street competitor to Wall Street-oriented titans like JPMorgan Chase ( JPM), had a great trading year. It's just not for the reasons you might think. A recent report suggests Wells Fargo secretly engages in the type of Wall Street trading activities in esoteric and risky products normally dominated by the likes of JPMorgan, Goldman Sachs ( GS) and Bank of America ( BAC). The truth is Wells Fargo's trading skill is far more pedestrian and profitable than one might think: buying back its own stock. The nation's top mortgage lender may simply be effectively plying the very trading rules that its largest investor - Warren Buffett of Berkshire Hathaway ( BRK.A) - has long advocated. After disclosing a 48 million share buyback in fourth quarter earnings, Wells Fargo ended 2012 having repurchased roughly 120 million shares at an average price of $32.35. As the San Francisco-based lender petitions the Federal Reserve to increase its dividend payout above current levels, Wells Fargo investors are likely appreciative of the bank's near $4 billion in total 2012 stock buybacks, which came, on average, roughly 8% below current stock trading levels. Still, investors might want to see more by way of buybacks. Overall, Wells Fargo's share count didn't budge much in 2012 and buybacks basically offset share issuance for stock compensation. "
Over the long term we like to do better than what we did this year," said CFO Tim Sloan. Wells Fargo shares less than 1% lower on Friday to $35.10 after record fourth quarter earnings came with strings attached. Using crude math and Wells Fargo's mean book value per share value of $26.56 reported through 2012, those buybacks came at an average price of roughly 121% of the firm's reported book value. Buffett, an over 13% shareholder in Wells Fargo, may have been taking notes. In December, the 'Oracle of Omaha' turned heads when Berkshire Hathaway authorized a $1.2 billion buyback at a price of 120% of book value, a higher premium than the 110% mark the financial conglomerate outlined as its threshold at the outset of 2012. Wells Fargo's Wall Street brethren, most notably JPMorgan, have shown less aptitude in the buyback trade, and actual trading losses have made authorizations less predictable. After a big 2011 buyback program, JPMorgan CEO Jamie Dimon was left apologizing to shareholders for a double digit loss on some of those repurchases. Meanwhile, a trading loss that exceeded $6 billion in 2012 forced Dimon to retreat from a $15 billion authorization for the year. In the third quarter, JPMorgan reinstated a multi-billion dollar buyback plan
Wells Fargo and Berkshire Hathaway shareholders may not need to fear a similar buyback outcome as JPMorgan. Increasing price to book value buyback authorizations may simply reflect a recovering stock market and improving investor sentiment. For Wells Fargo investors, they may also be comforted by the bank's focus on increasing its dividend. "Our 2013 Capital Plan that we submitted to our regulators last week requests an increase in capital distribution to shareholders as compared to our 2012 plan," said Sloan, on a Friday earnings call. As Wells Fargo shows strong returns on its buyback trade, a criticism that the bank is involved in a type of complex proprietary trading rings hollow. In an article, The Atlantic found a $377 million trading loss Wells Fargo incurred in 2011 on a collateralized debt obligation as evidence the bank has hidden proprietary trading bets. "Whatever the reason, Wells Fargo's massive CDO-derivatives loss was a multi-hundred-million-dollar tree falling silently in the financial forest," wrote The Atlantic. In fact, the loss was disclosed as stemming from securities picked up in its 2008 acquisition of Wachovia and not some rogue CDO trading desk. "The loss was associated with the resolution of a legacy Wachovia position that settled during the year," Wells Fargo said in its annual report. "Prior to 2008, we engaged in the structuring of CDOs... We have not structured these types of transactions since the credit market disruption began in late 2007," the bank added. In 2012, Well Fargo reported a $78 billion increase in the earnings assets it holds on its books, rising to $1.2 trillion. However, the interest earned on those assets, which are spread across Treasuries, trading assets, mortgage backed securities and various types of commercial and residential loans, fell from 4.41% to 3.96% over the course of 2012. Overall, Wells Fargo's net interest margin, after accounting for funding costs, fell from 3.89% to 3.56% in 2012. A greater than expected 10 basis point decline in the fourth quarter raised some investor concern. For more on Wells Fargo's earnings, see why the bank's investors will need to show patience. Here's a look at why any of Wells Fargo's earnings troubles were hidden in plain sight ahead of the Friday report. Follow @agara2004 -- Written by Antoine Gara in New York