Federal spending was expected to decline, with required budget cuts and employee furloughs, following the sequestration that began in March. The BEA said that "the increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential investment, and nonresidential fixed investment." This implied that there was little effect on consumer spending from the end of the 2% reduction in Social Security taxes in January. On a more positive note, the final estimate on the University of Michigan Consumer Sentiment Index was also released this morning, coming in at 76.4 in April vs. the initial estimate of 72.3. Economists were expecting a reading of 73.2 for April. The KBW Bank Index ( I:BKX) was down slightly to close at 56.58, with all but six of the 24 index components showing declines for the session.
Wells FargoShares of Wells Fargo have returned 11% year to date, following a 27% return during 2012. The shares trade for 1.3 times tangible book value, according to Thomson Reuters Bank Insight, and for 9.7 times the consensus 2014 earnings estimate of $3.90 a share. The consensus 2013 EPS estimate is $3.70.
Wells Fargo on April 12 reported a record profit of $5.2 billion, or 92 cents a share, for the first quarter, compared with 91 cents the previous quarter and 75 cents a year earlier. All of the major U.S. big banks were expected to show significant sequential declines in mortgage revenue because of a slowdown in home-refinancing activity and because a rise in long-term interest rates had caused profit margins on the sale of newly originated loans to decline. Wells Fargo's first-quarter mortgage revenue totaled $2.8 billion, down from $3.1 billion in the fourth quarter and from $2.9 billion in the first quarter of 2012. First-quarter mortgage loan originations declined to $109 billion from $125 billion the previous quarter. Net gains on mortgage-loan origination and sales totaled $2.5 billion in the first quarter, declining from $2.8 billion in the fourth quarter and from $2.6 billion in the first quarter of 2012. Drops in credit costs and other expenses more than offset the company's mortgage revenue decline. Noninterest expense declined to $12.4 billion in the first quarter from $12.9 billion the previous quarter and $13 billion a year earlier. The company said that the sequential improvement was "primarily due to lower operating losses associated with the Independent Foreclosure Review settlement and a $250 million charitable contribution to the Wells Fargo Foundation in the fourth quarter."
Wells Fargo's gain-on-sale margin for mortgage loans sold during the first quarter was 2.56%, which matched the record margin for the fourth quarter. But this is a delayed indicator for the company, as it recognizes loan sales when they actually occur rather than when the new mortgage loan has its rate "locked," as most other large banks do.
Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock. -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn