Wells Expects $3 Billion Q1 Return to Green
Finally, a bit of good news from the banking industry. Wells Fargo & Co. ($40.66 0%) on Thursday said it expects to post a record net income of $3 billion -- or 55 cents per share -- in its first-quarter earnings statement, which is due out April 22. The expected gain would come after accounting for $372 million in dividends paid to the Treasury Department on its TARP capital investment.
As part of the gain, Wells said it expects $20 billion in total revenue, offset by combined net charge-offs of $3.3 billion for both Wells and Wachovia (from $6.1 billion in the fourth quarter). Wells built its credit reserve by $1.3 billion, bringing the total credit loss allowance to $23 billion, the company said. The company also said it had seen stronger-than-expected business out of acquired Wachovia Corp.
“Wachovia’s outstanding franchise has proven to be everything we thought it would be when we announced this acquisition, and the financial contribution from Wachovia exceeded our expectations in the first quarter,” CEO John Stumpf said in the company's preliminary earnings statement. Wachovia's business contributed 40 percent of Wells' combined revenue, the company said.
“Business momentum in the quarter reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results -- $100 billion in mortgage originations, with a 41 percent increase in the unclosed application pipeline to $100 billion at quarter end, an indication of strong second quarter mortgage originations,” said chief financial officer Howard Atkins.
Wells said it had committed $175 billion in loans, mortgage originations and mortgage securities purchases in the first quarter, had seen $190 billion in mortgage applications from more than 800,000 prospective borrowers and had funded more than $100 billion in both purchase and refinance mortgage loans for more than 450,000 homeowners. The company also touted more than 150,000 "mortgage solutions" in the quarter.
Wells' shares were trading at $18.85, up almost 27 percent, shortly after the announcement when this story was published. The announcement marks a stark return from red territory entered in the fourth quarter of last year; Wells had posted a loss of $2.55 billion -- or 79 cents per share -- in late January. The loss, which excluded Wachovia's business, was Wells' first in seven years. Three short months later, the bank seems to have more than turned that around (ironic that early reports of the bank's anticipated return from the red came days before Easter Sunday, but we'll leave you to draw the similarities there).
The announcement also puts some perspective on last week's reports that Wells would soon offer up to $4 billion in warehouse lending to independent mortgage bankers that are finding themselves increasingly shut out of diminishing warehouse credit from fewer warehouse lenders. If the bank is in fact over the credit-crunch hump, so to speak, it may very well find itself in a position to offer quantities and forms of lending that were considered imprudent while banks were still getting their arms around huge default- and write-off-related losses.
What remains to be seen, however, is whether Wells' projections will hold up when it officially releases first-quarter earnings, whether this may signal a turnaround for other lenders that shed a substantial amount of red ink in the fourth quarter and whether any such turnaround implies a real bottom to the credit crisis. What's clear is that, for at least one lender, there is some kind of light flickering at the end of the tunnel.
Write to Diana Golobay at email@example.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
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