Credit Quality Overshadows Wells Fargo's Profit

[Dover]

American Banker |
Thursday, July 23, 2009



Wells Fargo & Co. did a lot of things a public company is supposed to do at earnings time — report a flashy profit gain and appear to exceed an ambitious capital plan, to name two — but it just wasn't enough to silence the alarm bells from a larger-than-expected deterioration in credit quality.

The guarded reaction of analysts and investors not only speaks volumes about the complexities of a banking giant like Wells Fargo, it underscores how in this earnings season, deep scrutiny of credit-quality statistics has supplanted routine measures such as earnings per share.

Besides a double-digit jump in the bottom line, the $1.3 trillion-asset Wells reported solid revenue growth — not only from mortgage banking but across many of its business lines — as well as margin expansion from core deposit growth. It also said it could fulfill its capital-raising plan without another stock offering.

However, chargeoffs and nonperformers rose more than expected, in both legacy Wells commercial real estate and consumer loan portfolios, and from option adjustable-rate mortgages inherited from its Wachovia Corp. acquisition last year...cont'd

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