Wells Fargo (
) reported 3Q13 EPS of $0.99, $0.02 above analyst estimates. That
said, the beat was over-shadowed by the steep decline in mortgage
banking. Earnings were also helped by a loan loss reserve release
and a lower tax rate which analysts give less credit for. Revenues
fell short of estimates at $20.5 billion, compared to consensus at
Expenses declined 1% from Q2 2013 due to lower incentive
compensation, although this was less than the revenue decline of 4%
(which means that Wells Fargo's cost cutting initiatives for the
quarter were not enough to offset lower revenues).
The company's efficiency ratio was 59.1%, just above its 55-59%
target. By definition, an efficiency ratio measures how much the
bank pays on operating expenses (and a lower ratio is better, which
obviously wasn't the case in Q3).
Core mortgage production came in below estimates. Specifically,
fee income in the division was $1.6 billion, down from $2.8 billion
in Q2 2013 while origination fees dropped 49% to $1.25 billion.
Applications declined 40% to $87 million, suggesting continued
pressure in mortgage banking for the next few quarters.
Trust & investment fees declined by $218 million while
investment banking fees were also lower (similar to JP Morgan - JPM
although this was more or less expected as the brokerage business
is seasonally lower in Q3).
Net Interest Margins (
) were down by 8 bps quarter over quarter, more than the street's
forecast for a decline of 4 bps to 3.38%. According to management,
compression was due to deposit growth, liquidity-related issuances
(term deposits & long-term debt), the net impact of balance
sheet re-pricing and lower income from variable sources.
Overall, Wells Fargo posted Return on Assets (ROA) of 1.53% and
a Return on Equity (ROE) of 14%. The silver lining came from lower
credit costs which should continue to support earnings. The Basel
III Tier 1 common ratio was 9.54% (versus 8.54% last quarter),
implying an improved company credit profile and refinements for
Separately, the company repurchased 50.9 million shares in 3Q13
(up from 26.7 million in Q2).
WFC 41.40 -0.03 -0.07
JPM 52.48 -0.03 -0.06