Wells Reports Record Profit

Wells Fargo was the first bank to announce some details on its expected first quarter results. The bank said it expects to post quarterly net income of $3 billion, which is a record.  

Various banks have said that they expected the first quarter to mark a turnaround and most analysts have agreed that, given the nature of the yield curve and extraordinarily low cost of funds due to various government assistance plans, banks should post strong results. The wild card is how much of the income gets eaten up by reserves and other write-downs.

In Wells case it wasn’t enough to keep the bank from strong profitability. Net charge-offs were $3.3 billion versus $6.1 billion in the fourth quarter and reserves were increased by $1.3 billion. Your guess is as good as anyone else’s if this is a good number.

I don’t doubt that other banks are going to follow suit. They may be hard pressed to match Wells as its mix of business, particularly its strong mortgage business, is well suited to take advantage of the current funding environment. I also think that this is reasonable evidence that banks like Wells that stuck closer to traditional banking probably have a good chance to earn their way out of their predicaments. 

This does not mean by any measure that we are at the end of this crisis. The very large banks with a heavy exposure to derivatives and other capital market activities are still questionable and at the other end of the spectrum, a lot of smaller community banks with significant commercial real estate exposure are quite vulnerable.

The Wells news hopefully indicates that there are some players that might be coming out of the woods.

more: here and here

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