NEW YORK (TheStreet) -- Wells Fargo (WFC) shares closed trading up 0.91% to $55.47 in intraday trading today, the same day the bank was sued by the U.S. credit union regulator for allegedly failing to fulfill its duties as a trustee for certain residential mortgage-backed securities trusts purchased by five credit unions that ended up going bust.
The National Credit Union Administration (NCUA) filed the suit today, seeking a jury trial for damages related to five credit unions who bought $2.5 billion in residential mortgage-back securities from 2004 to 2007. The securities soured as borrowers began to default on their loans in the midst of 2009's mortgage crisis and the suit alleges that Wells Fargo failed in its position as a trustee for those securities.
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The five credit unions ended up going under as a result of the crumbling foundation of the mortgage-backed securities and the lawsuit alleges that Wells Fargo failed in its obligation to correct problems with the loans and act in the best interest of the credit unions.
"We strongly disagree that Wells Fargo is in any way responsible for any losses incurred on these transactions," said a bank spokesperson of the claim.
TheStreet Ratings team rates WELLS FARGO & CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate WELLS FARGO & CO (WFC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, growth in earnings per share, expanding profit margins and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- Despite its growing revenue, the company underperformed as compared with the industry average of 5.6%. Since the same quarter one year prior, revenues slightly increased by 3.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- WELLS FARGO & CO's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WELLS FARGO & CO increased its bottom line by earning $3.89 versus $3.36 in the prior year. This year, the market expects an improvement in earnings ($4.10 versus $3.89).
- The gross profit margin for WELLS FARGO & CO is currently very high, coming in at 93.74%. Regardless of WFC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WFC's net profit margin of 25.76% compares favorably to the industry average.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Commercial Banks industry average. The net income increased by 2.7% when compared to the same quarter one year prior, going from $5,578.00 million to $5,729.00 million.
- You can view the full analysis from the report here: WFC Ratings Report