Wells Fargo (WFC) Q2 Earnings: What to Expect

Wells Fargo - Shutterstock photo
Credit: Shutterstock photo

Bank stocks have been on an absolute tear of the past several weeks. Driven by optimism over a vaccine which eased concerns not only about widespread customer defaults, the Financial Select Sector SPDR ETF (XLF) is now up some 19% in six months, rising 24.5% year to date, besting the S&P 500 index in both spans.

It would seem any concern the market has had about the state of the economic recovery has vanished. One of the main beneficiaries of improving sentiment has been Wells Fargo (WFC) which has seen its stock rise some 32% over the past six months. With the stock now up 45% year to date, besting the 16% rise in the S&P 500 index, the market appears willing to look beyond some of the bank’s legacy issues and certainly some near-term headwinds. But it’s also worth asking whether optimism has run too far ahead of expectations.

The troubled bank is set to report second quarter fiscal 2021 earnings results before the opening bell Wednesday. Last week the bank announced plans to end all existing personal lines of credit within weeks, saying it no longer plans to offer the product which typically allow customers borrow from $3,000 to $100,000. The company said in letter that the move will allow the bank to focus on personal loans and credit cards. The bank also informed customers that their credit scores may be adversely impacted by this decision.

The bank has received some criticism for this decision by, among others, Senator Elizabeth Warren. “Not a single customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence,” Warren, a Massachusetts Democrat, tweeted. “Sending out a warning notice simply isn’t good enough – Wells Fargo needs to make this right.” It’s safe to say that aside from inquiries about the bank’s top and bottom line results, there will be plenty of questions from analysts Wednesday about Well’s Fargo’s new direction.

For the three months that ended June, analysts expect Wells Fargo to earn 96 cents per share on revenue of $17.82 billion. This compares to the year-ago quarter when it lost of 66 cents per share on revenue of $17.84 billion. For the full year, ending in December, earnings are projected to be $3.88 cents per share, up from 41 cents per share a year ago, while full-year revenue of $71.12 billion would decline 1.7% year over year.

Wells Fargo's projected full-year earnings growth of 846% from 41 cents a year ago to $3.88 per share is nothing short of remarkable. That impressive growth, however, has to do with the improvements the bank has made of the reduction in loan loss provisions. The Fed has noted that Wells Fargo’s loan losses are no longer as risky as they were are the start of the pandemic. Aside from meaningful improvements in charge-offs and core provisioning, Wells Fargo’s adjusted expenses are also trending in the right direction, helping to deliver beat on the bottom lines.

These moves include plans to slash some $10 billion in expenses — whether via organizational structure optimization or branch rationalization. While there are still plenty of challenges for Wells Fargo, including the fact that it has to balance much-needed cost cuts with revenue/business growth, the bank has nonetheless executed as well given the deficits it has had to overcome. On Wednesday investors will look to see whether Wells Fargo can build on its recent successes.

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

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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