Wells Fargo Slumps on Earnings (WFC)

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Wells Fargo & Company (NYSE: WFC) is out with its first quarter earnings and the reaction looks a bit mixed on the surface.  The bank reported earnings growth of 11% from the prior quarter to $0.75 EPS as net income was up 14% to $4.2 billion.  Revenues rose by 20% from the prior quarter to $21.6 billion.  Thomson Reuters had estimates of $0.73 EPS and $20.46 billion in revenue.   The return on average assets was 1.31%, up 6 basis points from the previous quarter. Return on equity rose 17 basis points from the previous quarter to 12.14%.

Wells Fargo also reported that its Tier 1 common equity under Basel I increased $4.4 billion to $99.5 billion, with a Tier 1 common equity ratio of 9.95%,  Under current Basel III capital proposals, its Tier 1 common equity ratio was projected to be 7.81%.

Credit quality continued to improve in the first quarter and net charge-offs were $2.4 billion, or 1.25 percent of average loans (versus $2.6 billion or 1.36% in the prior quarter).  The loan loss reserve release was $400 million compared with $600 million in the prior quarter, and now the bank expects continued but slower improvements this year as losses approach what they call a stable and more normalized level.

Wells Fargo trades at a premium to its book value of $25.45.  That level is higher than the prior quarter of $24.64 and compares to $23.18 a year ago.   Shares closed at $34.02 on Thursday and the stock is indicated down 1.4% at $33.55 in pre-market trading.

JON C. OGG

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