Earnings Preview: Wells Fargo & Co. (NYSE: WFC) Third Quarter 2010
Thursday, October 14, 2010 9:14 AM

Wells Fargo & Co. (NYSE: WFC) is scheduled to release third-quarter earnings before the opening bell on Wednesday, October 20, 2010. Analysts, on average, expect the company to report earnings of 55 cents per share on revenue of $20.95 billion. In the year-ago quarter, the company reported earnings of 56 cents per share on revenue of $22.47 billion.

Wells Fargo & Company, through its subsidiaries, provides retail, commercial, and corporate banking services principally in the United States. The company operates through three segments: Community Banking; Wholesale Banking; and Wealth, Brokerage, and Retirement.

In the preceding second-quarter, the San Francisco, California-based company's net income was $3.06 billion, or 55 cents a share, from $3.17 billion, or 57 cents a share, in the year-earlier period. Revenue fell to $21.39 billion from $22.51 billion. Analysts, on average, expected the company to report earnings of 48 cents per share on revenue of $21.40 billion. Second quarter net interest income declined to $11.45 billion from $11.76 billion recorded a year earlier. Net interest margin was 4.38%, up 8 basis points from 4.30% a year ago. Total noninterest income for the quarter declined to $9.95 million from $10.74 last year. Provision for credit losses were down 22% to $3.36 billion from $4.30 billion reported a year earlier. Credit losses declined 16% sequentially to $4.49 billion from $5.33 billion in the prior quarter. Net charge-offs declined to $4.5 billion or 2.33% of average loans compared with $5.3 billion or 2.71% of average loans in the prior quarter. Cross sale for Legacy Wells Fargo reached a record 6.06 products per household of Wells Fargo products, up from 5.84 percent a year ago, and reached 4.88 Wachovia products per household, up from 4.55 a year ago.

At its last earnings call in July, the company said that for the first time in the second quarter, the company began to see some life in certain lending businesses, including linked-quarter growth in Wholesale Commercial, Wholesale Asset-Based Lending, Global Financial Institutions, Wealth Brokerage and Retirement, Auto Dealer Services, and Private Student Lending.

The Wachovia merger integration remains on track and is expected to realize $5 billion of annual merger-related savings upon completion of the integration process in 2011. At the end of the second quarter, the company had already achieved about 80% of the expected $5 billion in annual run-rate savings. The acquisition of Wachovia has helped company to expand its customer base and geographic reach.

As far as financial regulation is concerned, the company expects that the overall impact on Wells Fargo will be lower than the impact of its large-bank peers; particularly in areas such as proprietary trading, derivatives, and private equity. The company expects after-tax impact of $225 million from Reg E and other overdraft changes in the third quarter and about $275 million in the fourth quarter, not including any offsets. The impact from the card act will be relatively small, approximately $30 million after tax in the third quarter.

In terms of stock performance, shares of the company have lost more than 5% since the beginning of the year.
Disclosure: Author doesn't own any of the stocks discussed here.


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