) is a diversified financial services company headquartered in San
Francisco. It is the fourth largest bank in the U.S. by assets and
the second largest bank by market cap. It is also the second
largest bank in deposits, home mortgage servicing, and debit cards
in the United States. Wells Fargo's competitors include banks such
as Bank of America (
), Goldman Sachs (
), JP Morgan (
), Citigroup (
) and UBS (UBS).
We estimate that the mortgage business is the largest
contributor of value to Wells Fargo, accounting for 28% of our
price estimate for the company's stock. Other divisions
contributing significantly to Wells Fargo's value include asset
management & brokerage and securities & trading, each
making up about 19% of the company's equity value.
See our full analysis and $33.81 price estimate
for Wells Fargo
Decreased Net Charge-Offs
During its Q4 2010 earnings call in mid-January, Wells Fargo
reported a significant improvement in the performance of its loan
portfolio (including both loans and mortgages) as lending
increased. The result was driven by strong loan demand
(particularly from business owners) and decreased net charge-offs
(loans lenders don't think are collectible), largely due to better
than expected performance of the acquired Wachovia loan portfolio.
Net charge-offs declined to 2.02% of average loans in the fourth
quarter, considerably lower than the 2.71% observed a year
earlier and the 2.14% seen in Q3 2010.
Just to give you an idea of the sensitivity of Wells Fargo stock
price to loan losses, a 1% increase in the provision for credit
losses as a percentage of average home mortgage loans in 2011 (vs.
our base forecast of a 0.5% decline, as shown above) would imply
downside of nearly 20% to our $33.81 price estimate for Wells Fargo
However, we are optimistic that provisions for credit losses
across the various loan segments (including commercial, commercial
real estate and home mortgage) will
continue to decline
in the future as economic conditions improve, resulting in fewer
defaults and lower net charge-offs.