Wells Fargo & Company (WFC): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Wells Fargo's first-quarter 2014 earnings outpaced the Zacks Consensus Estimate as well as the prior-year quarter earnings. Results reflected growth in total loans and deposits amid a challenging economy and disciplined expense management. Moreover, a strong capital position and returns on assets and equity were tailwinds. However, the company experienced a fall in non-interest income. In the long term, we remain optimistic about the company, based on its diverse geographic and business mix. Strategic acquisitions and a solid capital position are expected to improve profitability going forward. Yet, we believe the top-line headwinds would persist, given the protracted economic recovery. The company's unrelenting legacy mortgage issues and regulatory pressure also remain concerns.

Overview:

Wells Fargo & Company (WFC) is one of the largest financial services company in the U.S. (in terms of assets) with $1.5 trillion in assets and over $1.0 trillion in deposits. The company provides banking, insurance, trust and investments, mortgage banking, investment banking, retail banking, brokerage services and consumer and commercial finance through over 9,000 stores, 12,000 ATMs, the internet and other distribution channels to individuals, businesses and institutions across North America and internationally. Moreover, the acquisition of the Wachovia Bank in Dec 2008, transformed it into a premier coast-to-coast financial services franchise.

The San Francisco-based company, as it stands today, is a result of the 1998 merger between Norwest Corporation and the former Wells Fargo (founded in 1852), as well as the recent merger with Wachovia Bank. Wells Fargo is also a premier institution in community banking, small business lending, middle market commercial banking, agriculture lending, commercial real estate lending, commercial real estate brokerage and bank-owned insurance brokerage, in the U.S.

The company provides its services through three broad segments: Community Banking, Wholesale Banking, and Wealth, Brokerage and Retirement.

Community Banking (contributed 57% of the total revenue in 2013) offers a complete line of diversified financial products and services to consumers and small businesses, including investment, insurance and trust services, in 39 states and D.C. It also offers mortgage and home equity loans in all 50 states and D.C. through its Regional Banking and Wells Fargo Home Mortgage business units.

Wholesale Banking (28%) offers financial solutions to middle market and large corporate customers, across the U.S. and globally, with annual revenue generally in excess of $20 million. Products and businesses include commercial banking, investment banking and capital markets, securities investment, government and institutional banking, corporate banking, commercial real estate, treasury management, capital finance, international, insurance, real estate capital markets, commercial mortgage servicing, corporate trust, equipment finance, asset backed finance, and asset management.

Wealth, Brokerage and Retirement (15%) provides a full range of financial advisory services to clients. The Wealth Management division offers affluent and high net worth clients with a complete range of wealth management solutions, including financial planning, private banking, credit, investment management and trust. The Brokerage division serves customers' advisory, brokerage and financial needs as part of one of the largest full-service brokerage firms in the United States. The Retirement division provides institutional retirement and trust services (including 401(k) and pension plan record keeping) for businesses, retail retirement solutions for individuals, and reinsurance services for the life insurance industry.

In Jul 2013, Wells Fargo agreed to purchase a commercial real estate portfolio from Hypothekenbank Frankfurt a subsidiary of Commerzbank. The buyout included the subsidiary's assets worth $6.05 billion ( 4.0 billion) in the U.K., in particular those that are clustered in London. Moreover, a fraction of this portfolio, comprising nonperforming assets worth $1.5 billion ( 1.0 billion), was purchased by Lone Star Funds, a private equity group. The acquisition closed on Aug 2, 2013. The acquisition helped the company expand its commercial real estate platform in the U.K, thereby driving long-term profitability.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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