Surely these are headline numbers to please the most
despondent: During the third quarter,
Wells Fargo (NYSE: WFC) generated record net
income of $3.2 billion, doubling its year-ago figure.
Earnings per share rose at a more modest 14% to $0.56 per
share, but that was over 50% ahead of the analyst consensus
estimate. Yet as I write this, Wells Fargo shares are off 5%
today -- much worse than the modest declines in the KBW Bank
Index and the S&P 500. What's going on here?
Looking forward through a rearview mirror
Third-quarter earnings are in the books, and the market
is a discounting machine. Past earnings are only relevant to
the stock price inasmuch as they contain information about
future earnings. However, over the next six to 12 months (the
time horizon of most hedge/mutual funds), the uncertainty
affecting bank earnings remains high -- commercial real
estate is still a big question mark, for example.
Furthermore, although the financial system has survived
the crisis, the banking crisis is anything but over. As the
table below demonstrates, the proportion of non-performing
loans continues to rise; in fact, it rose faster at Wells
Fargo than at
Bank of America (NYSE: BAC),
JPMorgan Chase (NYSE: JPM), or
US Bancorp (NYSE: USB) (albeit from a lower
base). Wells expects credit losses to peak in 2010.
Bank
Non-Performing Loans as a % of Total Loans
Q3 2009
Non-Performing Loans as a % of Total Loans
Q2 2009
Non-Performing Loans as a % of Total Loans
Q1 2009
Wells Fargo (NYSE: WFC)
2.6%
1.9%
1.2%
Bank of America (NYSE: BAC)
3.5
3.1%
2.5%
Citigroup (NYSE: C)
N/A
4.4%
4%
JPMorgan Chase (NYSE: JPM)
2.7%
2.2% Continued... |