Wells Fargo Looks to Stay Ahead of the Curve

NEW YORK (TheStreet) -- With 2013 stock gains of over 36% -- besting both JPMorgan Chase (JPM) and Citigroup (C) -- it should surprise no one that Wells Fargo (WFC) is one of the best performing large banks in the country, if not the best.

Despite what has been one of the toughest interest rate environments within the banking industry, Wells Fargo's management showed incredible fiscal awareness throughout all of 2013. The impressive boost in the company's bottom line occurred amid some slight increases in expenses. No small accomplishment, given the highly competitive nature of this sector.

[Read: Morici: Only 74,000 Jobs Added in December; Growth's Slipping]

Equally impressive has been the bank's success at growing loan balances, particularly given the sluggishness that JPMorgan and Bank of America (BAC) experienced in mortgage lending and overall loan demand. It certainly seems as if management's decision to expand its credit card business -- an effort to double its loan volume -- paid off handsomely. I had my doubts. They proved me wrong.

On Tuesday, Wells Fargo will announce fourth-quarter results. The Street will be looking for 98 cents in earnings per share on revenue of $20.66 billion, which would represent a year-over-year revenue decline of close to 6%. Given the struggles the industry has experienced with loan growth and weak home loan originations, revenue decline alone does not come close to telling the real story here.

Take the bank's third quarter results: Although revenue fell close to 4% year over year, Wells Fargo still grew profits by 13% while posting a 2-cent beat on a per-share basis. And this is even with a 42% decline in home loan originations as a result of the poor interest rate environment.


What's more, Wells Fargo managed to grow its market share to close to 6%. In becoming the third-largest retail banking franchise in the country, customers continue to respond to the talent and resources Wells Fargo has put together in its commitment to customers.

Plus, I haven't even mentioned how strong of an auto lending business the Wachovia merger has created due to Wells Fargo's enhanced capabilities. And this is while expanding and diversifying not only the bank's geographic market position, perhaps more impressively, it widens the bank's revenue stream.

[Read: Down With the Connected Car!]

Clearly, I'm a huge fan of Wells Fargo's management team. I do believe, however, for the bank to truly stay ahead of the curve, there are several areas of improvement that needs attention. Not the least of which is Well Fargo's performance in net interest margin (NIM), which is the metric that denotes how well management utilized its capital and/or whether certain investment decision paid off when compared to the bank's overall debt situation.

To that end, net interest margin has seen some recent declines - and was down again by 28 basis points in the October quarter, which had an adverse impact on net interest income. Next, I would also like to see Wells Fargo get more aggressive and use its strength in mortgage lending to fight off Citigroup and JPMorgan. And I believe more of an effort to gain share in branch network and deposits against Bank of America would help get revenue going back in the right direction.

Having said all of that, the qualities that have made Wells Fargo so impressive still remain. Unlike JPMorgan or Citigroup, Wells Fargo continues to benefit from businesses like investment banking that is known to present unfavorable risk. Not to mention, unlike Citigroup, Wells Fargo is not so overly exposed to the European market, which is known for fiscal volatility.

Finally, it really comes down to value. And Wells Fargo still offers pretty appealing long-term potential - even should the bank's absolute performance on Tuesday underwhelms. While most banks tend to fall in within the same category and thus appraised on similar standards and metrics, it's become clear that Wells Fargo wants to remain a cut above. Accordingly, the stock remains a solid buy.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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