Wells Fargo Helps Tip Wednesday's See-Saw

The see-saw affair that is today's markets went there and back again earlier this week.  Wednesday, based on some encouraging news from Wells Fargo (WFC), saw the scales tip back towards the Bulls.

Wells Fargo, the financial holding and banking company, saw its earnings drop 20% year over year, but in fact raised its divided and shouted from the rooftops that business ain't all that bad. The stock's reaction? a 30% gain! Piggybacking off this new found Financial Sector optimism were the usual banking and brokerage suspects. Coupled with a drop in Oil prices, the banks were the leading story in the Dow's 270 point resurgence Wednesday.

Despite the 21% fall in profits, WFC showed much optimism for continued operational flexibility and earnings-power. The company reiterated it's keen eye for 'strategic acquisitions' in a broad plan to expand into an Eastern customer base, and with mortgage houses and local banks falling by the wayside left and right, the marketplace is ripe for consolidation.

This was the biggest collective buying push for the company's shares today. Not to be outdone, however, was the dividend bump. As yields continued to climb for the Financial sector, many on the Street anticipate further substantial dividend cuts from the major banks, so a 10% bump in Wells Fargo's payout was welcomed by investors.

Numbers were refreshing across the board, $1.8Billion in profit ($0.53/share) on $11.5Billion in revenue, representing a 16% year over year rise for the top line. It was also confirmed by management that product performance is increasing throughout the company and its clients. In effect, the company is selling more products to each customer, on average.

The fact that WFC set aside $3Billion to cover potential future losses was largely glossed over in reporting on the quarter, and a number of that size has to be taken into consideration. Loan losses are still very real in today's banking climate; however, if WFC is one of the many first steps to stabilization in an un-easy US economy, the loss provision will seem largely insignificant in the quarters that lie ahead. In today's environment that is still an "if" that for many traders is filled with uncertainty.

Disclosure: Author holds no position in WFC

Comments

[fatcat:]

I bought puts on WFC at 3:00 today....I guess I don't believe the financials are recovering yet...Furthermore,thei... portfolio of equity loans(with no equity left to secure them),is troubling me...

2008 Jul 16 07:42 PM

[Archman Inv...:]

WFC is just one bank that "wont suck as much" as other banks that are going to report this quarter. They fully admitted they now have 7 billion dollars set aside for all the bad crap that is coming, and that number is going to rise.

I have read alot of posts on here and on other forums where the average person is completely clueless about housing, etc. I am in the housing business. Inventories are HUGE still!! People are still asking unrealistic prices for their homes. The majority of deals that go to contract actually are falling thru because most people do not have enough down payment or cannot simply qualify for the loan.
Many many mortgages are still resetting, and HELOC's are starting to go into default. Credit cards are next.
People seem to think that the financials are just going to run right back up 100,200 and 500%. The healing process for these stocks is going to take years not months.
Todays rally was nothing more than short covering, and it is giving way to many people who invest based on hope, another reason to think the bottom is in

2008 Jul 16 08:58 PM

[valueinvest...:]

I own WFC and think its a great bank, but it has always been a great bank. The problem is not WFC. It is in the poorly run banks like MER, C, DSL, BAC, NCC etc. WFC doing well and being able to raise their dividend is not indicative of us being near a bottom in financials.

2008 Jul 16 09:18 PM

[icandoitdon:]

i wonder if wells fargo didn't decide to raise their dividend just to burn the shorts. whatever their motivation it strikes me as short cited given the circumstances.

wachovia's clueless management raised their dividend last year when we were just entering the storm, with their stock around 40, only to cut it later. now their stock is about 10 and they'll have to cut it again, likely with a meat ax. of course, they might be stupid enough to maintain the dividend and issue massively dilutive equity instead.

banks have consistently proven they are among the worst mangeged of institutions in capitaism...hands down. i don't see wells fargo as an exception.

2008 Jul 17 01:05 AM

[sickofthehype:]

archman says everyone knows nothing compared to him - well, maybe YOUR deals are falling through, but i'm in a 'bubble market' that has marked improvement and deals are CLOSING. i'm watching it happen, and i sold a home i personally own just today - it took 22 days to get it done, and no - it wasn't a short sale. reasonably priced homes are getting multiple offers, and while the market is still bad, it's not the end of the world as you and our mainstream media preach on a daily basis.

2008 Jul 17 01:43 AM

[netemcee:]

They beat estimates by postponing $265 million in home equity loan charge-offs. If the futures market is any indication then that number will grow substantially by next quarter. I'm definitely staying short on financial stocks.

2008 Jul 17 01:49 AM