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Wells Fargo (NYSE: WFC) has been shaken by a series of scandals and sanctions in recent years and its recent results have been disappointing to say the least. In the second quarter, for example, the bank revealed that its deposit base and loan portfolio contracted, while most other banks experienced impressive growth.
Thus, shareholders could be pleasantly surprised that Wells Fargo seems to be one of the first winners of the third quarter earnings season. Here is an overview of the numbers, other highlights and what investors can expect.
Source of the image: Wells Fargo.
Title numbers
First, let's take a look at the title numbers. Wells Fargo's earnings actually missed estimates, reaching $ 1.13 per share versus $ 1.17 expected. Revenues exceeded estimates, but not much, with a total of $ 21.9 billion for the bank, $ 10 million more than estimates.
That said, the key and final numbers do not tell us the whole story, so let's take a closer look.
The most important thing for Wells Fargo
Of course, all Wells Fargo investors would like to see improved efficiency and profitability. However, these are not the most important things to focus on at the moment.
Instead, the most important is whether the bank scandals make him lose business (which has been the case in recent quarters) or if things start to stabilize or even get worse. improve. And on this front, the results seem quite positive.
Wells Fargo said 1.7% more current account customers than last year and also said that car and small business loans had increased by 10% and 28%, respectively. Original borrowings and lines of credit have also increased.
Deposits and loans are still down one year on the other, but both are down slightly (less than 0.5%) compared with the second quarter. And to be fair, with the sanction of the Fed, the bank is not yet able to focus on growing its assets.
So while we are still far from real growth, the company seems to be moving in the right direction.
Summary of other key indicators
Wells Fargo has shown substantial improvement in most key areas of its results report. Here is a brief overview of some of the other highlights that investors should be aware of:
- Wells Fargo net interest margin continues to improve, with an improvement of one basis point compared to the second quarter. Rising rates resulted in generally better margins for banks, but Wells Fargo had lagged behind until recently.
- After a disappointing 10.6% return on equity and 1.10% return on assets for the second quarter, the Bank's return on equity and return on capital for the third quarter of 1 27% should allay investors' fears about the bank's profitability.
- Wells Fargo's efficiency rate of 62.7% is poor, but it is a substantial improvement compared to 64.9% in the second quarter and 65.7%. % one year ago.
- Wells Fargo repurchased $ 6.8 billion in shares, more than three times the bank's redemptions in the third quarter of 2017.
Wells Fargo finally overcame the scandals?
From the point of view of the numbers, it seems that the consequences of the false accounts scandal and the other problems of Wells Fargo are finally beginning to fade.
Although this is certainly good news for shareholders, be aware that the fine imposed by the Federal Reserve prohibits the bank to gain height before the end of 2017. Until the bank makes improvements satisfactory in the eyes of the Fed and the penalty is lifted, the upside potential of the bank remains limited at the moment.
This is probably why the Wells Fargo share price did not rise after the earnings announcement – as long as the Fed's penalty is not lifted and the growth potential of Wells Fargo is more profitable, it can be difficult to justify investing in this bank in the best banks in decades.
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