Monday, April 19, 2010

Wells Fargo & Co. (NYSE: WFC): Q1 Earnings Preview 2010

Wells Fargo is scheduled to release its Q12010 earnings before the opening bell on Wednesday, April 21, 2010. Analysts, on average, expect the company to report earnings of $0.42 per share in the first quarter with estimates ranging from a low of $0.28 per share to a high of $0.51 per share. Revenues for the quarter are estimated to be $21.69 billion. In Q12009, the company reported earnings of $0.56 per share on revenue of $21.02 billion.

Wells Fargo & Company, through its subsidiaries, provides retail, commercial, and corporate banking services principally in the United States. The company operates through three segments: Community Banking, Wholesale Banking, and Wells Fargo Financial.

In the preceding Q12010, the San Francisco, California-based company reported net income of $394 million or $0.08 per share, compared to a loss of $3.02 billion or $0.84 per share in the prior-year quarter. Revenue rose to $22.7 billion from the previous year's revenue of $9.48 billion. Analysts, on average, expected the company to to post a loss of $0.01 per share on revenue of $21.97 billion.

Wells Fargo set aside $5.9 billion for loan losses in fourth quarter, 30% less than what it set aside a year earlier. According to industry experts, a decrease in loan loss provision suggests that the earnings will start to improve in 2010.

The bank took advantage of the financial crisis to expand its customer base and geographic reach through the acquisition of Wachovia. Wells Fargo has already begun to realize tremendous synergies from the merger. The company remains on track to achieve the $5 billion of annual run rate savings from the consolidation. It achieved approximately $2.9 billion of cost saves in 2009 and expects to achieve the remaining integration saves when integration is completed by year-end 2011.

In the fourth quarter, the company gained market share in several categories, thanks to the addition of Wachovia. The firm's market share in mortgage originations rose to 23% from 16% in 2008 and 10% in 2006. In auto lending, the company earned the status number one used auto lender as it increased its market share to 6% from 4%.

Last year was "the best year we ever had in terms of positioning the company for future growth," John Stumpf said in January. "I couldn't feel better about the opportunities ahead. The merger with Wachovia is exceeding all our expectations."

Wells Fargo also is seeking a bigger pie of the U.S. equity underwriting business currently dominated by JPMorgan Chase & Co and Goldman Sachs Group Inc. . Already, the acquisition of Wachovia Corp.'s securities unit helped Wells Fargo rank 10th in 2009 U.S. equity offerings.

The bank has announced plans to aggressively hire new financial advisers for its brokerage unit. It is reportedly planning to add about 10,000 financial advisors and brokers.

In the fourth quarter, Warren Buffet's Berkshire Hathaway Inc. (BRK-A) bought another 6.7 million of Wells Fargo's common shares. The investment firm now holds 320 million common shares, or roughly 6.7% of total outstanding shares, making it the largest shareholder. Similarly, John Paulson, too, was a big buyer of Wells Fargo stock last quarter. Through his hedge fund Paulson & Co., he bought 17.5 million in the last three months of 2009.

In terms of stock performance, Wells Fargo shares have gained nearly 19 percent since the beginning of the year.

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