Seeking to better align its international banking services, Wells Fargo (NYSE:WFC) is merging its global business with its wholesale corporate banking unit.
Although Wells derives just 4% of its revenues from outside the U.S. (a much smaller portion than rivals like JPMorgan, BofA and Citigroup), the bank's the international presence grew considerably last year following acquisitions from General Electric.
There was a bit of caution among bank investors in the past couple of days, but they're back to buying low and selling high this morning as the initial results from Q4 begin to pour in. Among those reporting today: Bank of America (BAC +1.8%), JPMorgan (JPM +1.9%), Wells Fargo (WFC +2.8%), PNC Financial (PNC +2.4%), First Horizon (FHN -0.3%).
An early take from KBW's Bose George: Mortgage banking trends are weakening in line with expectations - with stronger volumes being offset by lower gain-on-sale margins. Higher rates are still filtering through though, and industry sources and recent data suggest volumes falling 10-15% this quarter.
Piper's Kevin Barker calls Wells Fargo's operating numbers "decent," but notes rising auto loan net charge-offs - 1.05% in Q4 vs. 0.87% in Q3, and 0.59% a year earlier.
Bloomberg's Alison Williams takes note of the positive signal of boosted buybacks at Bank of America, and calls cost cuts "key." It's hard to get too excited about any particular metric given the bank's near-50% run higher in the past few months.
Other players: Goldman (GS +1.1%), Morgan Stanley (MS +2%), Citigroup (C +1.6%), U.S. Bancorp (USB +1.3%), Regions Financial (RF +3.2%), New York Community (NYCB +1.3%), Huntington Bancshares (HBAN +2.2%), KeyCorp (KEY +2.3%)
Q4 net income of $5.3B or $0.96 per share falls from $5.6B and $1.00 one year ago. Revenue of $21.6B flat.
ROA of 1.08% down 16 basis points; ROE of 10.94% down 99 bps. ROTCE of 13.16% down 114 bps.
Net charge-offs as a percent of total loans of 0.37% up 1 basis point. Allowance for losses of 1.30% down seven basis points.
Efficiency ratio of 61.2% up from 59.4% in Q3 and 58.4% a year ago.
Average deposits of $1.284.2B vs. $1.217B a year ago. NIM of 2.87% down five basis points. Average loans of $950B up from $885B. C&I loan growth of 10%; commercial RE of 8%; credit cards of 8%, residential mortgages up 1%.
Q4 noninterest income of $9.2B slipped from $10.4B in Q4 one year go. Fee income in many businesses was stable, but the bank did book a $592M loss thanks to the effect of higher rates and currency moves on its hedges.
Q4 earnings season kicks off tomorrow morning with Bank of America (BAC -1.1%), Wells Fargo (WFC -0.8%), JPMorgan (JPM -0.8%), PNC Financial(PNC -3%), First Horizon (FHN -2.1%), and First Republic (FRC -1.4%) all reporting. BlackRock (BLK -1.4%) is also due up tomorrow.
Among those next coming next week: Citigroup (C -1.2%), Goldman Sachs (GS -1%), and Morgan Stanley (MS -1.2%).
The KBE is up a whopping 40% Y/Y, including a 23.5% run since the election. It's lower by 1.9% on today's session vs. the S&P 500's 0.5% decline.
Giving well-fed financial sector bulls another reason to take some profits is the continued decline in interest rates over the past few weeks, with the 10-year yield lower by another six basis points today to 2.32% - it topped at about 2.60% in mid-December.
KeyCorp (KEY -2%), Regions Financial (RF -1.5%), Fifth Third (FITB -1.5%), State Street (STT -1.7%), MetLife (MET -1.9%), Prudential (PRU -2.9%), E*Trade (ETFC -1.5%), Schwab (SCHW -1.2%).
Yes, higher interest rates should boost Goldman's (NYSE:GS) trading business, says analyst Keith Horowitz, but the path is "relatively uncertain and the bar is relatively higher" given the bank's near-40% move since the election.
He downgrades to Sell from Neutral. The $225 price target suggests 6% downside.
Also downgraded to Sell is Comerica (NYSE:CMA) after its 80% Y/Y advance. Horowitz retains Buy ratings on Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC)
Attempting to fix what many believe was a cause of the bank's account opening scandal, Wells Fargo (WFC -0.3%) next week is planning to put in place changes for its retail-employee compensation system, writes Emily Glazer at the WSJ.
The new rules would reward workers based on metrics like customer service, customer usage, and growth in primary balances, rather than previous goals tied to the absolute number of cross-sells.
It's no secret that retail business is down since the scandal broke - with checking account openings off an average 37% per month and credit-card apps down 38% - but next week will offer even more concrete numbers in terms of Wells' Q4 earnings results, due on Friday.
The S&P 500 is lower by just 0.3%, but the financial sector (XLF -1.9%) is taking a sizable breather from its big post-election run.
Those buying on hopes for the long-awaited sustained rise in interest rates might be pausing as the 10-year yield sinks seven basis points to 2.37%. Two weeks ago, it was at 2.60%.
Bond bears have at least a couple of excuses to lighten up today. One might be softer-than-hoped jobs numbers from ADP. Or maybe economy bulls are mulling the carnage in retail (XRT -3.2%) - unless you happen to be Amazon (+2.3%) - following guidance, job, and store cuts at Macy's, and another 150 closings at Sears, as well as weak numbers from players like Kohl's.
Bank of America (BAC -2.6%), Citigroup (C -2.3%), Wells Fargo (WFC -2.8%), JPMorgan (JPM -1.9%), Morgan Stanley (MS -3.1%), Regions Financial (RF -2.6%), U.S. Bancorp (USB -1.9%), KeyCorp (KEY -1.7%), Fifth Third (FITB -2.9%), Schwab (SCHW -1.5%), MetLife (MET -2.4%), AIG (AIG -1.4%)
Yes, it was the holiday season, but don't discount the big move lower in the MBA mortgage application index over the past two weeks, says Piper's Kevin Barker. The latest data supports Barker's and team's view that refinance volume could drop 40-50% in Q1 from Q3 of 2016.
In addition to lower volume, limited demand for mortgages is likely to cause gain-on-sale margins to decline in the near-term, says Barker.
Top 10 Holdings as of 11/30/2016: Apple Inc (AAPL): 4.63963%, Microsoft Corp (MSFT): 3.66302%, General Electric Co (GE): 2.20638%, Bank of America Corporation (BAC): 1.63435%, Wells Fargo & Co (WFC): 1.53812%, Exxon Mobil Corp (XOM): 1.42369%, Procter & Gamble Co (PG): 1.36211%, Intel Corp (INTC): 1.2842%, Citigroup Inc (C): 1.25185%, Pfizer Inc (PFE): 1.24018%
Top 10 Holdings as of 11/30/2016: Apple Inc (AAPL): 6.41774%, Microsoft Corp (MSFT): 5.02091%, Exxon Mobil Corp (XOM): 3.79949%, General Electric Co (GE): 2.95312%, Wells Fargo & Co (WFC): 2.57416%, AT&T Inc (T): 2.47394%, Bank of America Corporation (BAC): 2.31355%, Procter & Gamble Co (PG): 2.28382%, Verizon Communications Inc (VZ): 2.10788%, Amazon.com Inc (AMZN): 2.06714%
Reading between the lines of the WSJ's story here, but it sounds like the management of Warren Buffett's favorite bank kind of believed it had something akin to a "free pass" in D.C.
In a letter to Wells Fargo (NYSE:WFC) following the rejection of its "living will," the Fed and FDIC scolded the lender for not even completing an assessment for how it would keep critical operations working during a bankruptcy, for example.
CFO John Shrewsberry flew to D.C. within hours of the rejection, and was joined by new CEO Tim Sloan shortly after. One takeaway: Regulators didn't think Wells devoted enough resources to the project, nor - in contrast to its TBTF peers - did it make enough changes to its approach after initially failing the test.
The bank apparently has now gotten religion, but if a response due by March doesn't pass muster, additional sanctions could be at hand.
The Fed votes to adopt a bailout prevention rule that will force big banks to issue substantial amounts of new long-term debt, largely upholding a draft issued early this year.
Half of the eight largest U.S. banks would need to issue ~$70B in fresh debt or equity to satisfy the new Total Loss Absorbing Capacity standard, the Fed estimates.
In all, the Fed says U.S. banks’ funding costs would increase by $680M-$2B annually, higher than the upper estimate of $1.5B in its October 2015 proposal.
Fed officials do not identify the four banks that lack sufficient debt; Wells Fargo (WFC +1.6%) said in November it envisioned issuing at least an additional $29B in debt to satisfy the rule.
Besides WFC, the banks expected to satisfy the new rule are JPMorgan Chase (JPM +1.9%), Bank of America (BAC +2.6%), Citigroup (C +1.6%), State Street (STT +1.1%), BNY Mellon (BK +1.4%), Morgan Stanley (MS +0.9%) and Goldman Sachs (GS +1.7%).