uploads///WFC NPAs

Wells Fargo’s Capital Position Appears to Be Holding Strong after 4Q15

By

Jan. 21 2016, Updated 4:06 p.m. ET

Analyzing Wells Fargo’s capital position after 4Q15

The San Francisco-based bank and mortgage lending giant Wells Fargo & Company (WFC) reported its 4Q15 earnings on January 15. As we discussed previously in this series, the company’s earnings beat Wall Street (SPY) analyst expectations due to higher loan growth and consistent financial performance. But now we should discuss an equally important component in the banking industry: capital position.

Article continues below advertisement

Understanding capital position in general and Wells Fargo’s in particular

Tier I Capital is a measure of a bank’s financial strength from a regulator’s point of view. It is the ratio of a bank’s equity capital to its risk-weighted assets. Wells Fargo’s capital position at the end of 4Q15, as measured by the Tier I Capital Ratio under Basel III norms, has remained constant at 10.7%, which is higher than the 10.6% the company reported during the previous quarter.

The company’s non-performing assets, however, reduced by $497 million from 3Q15 to $12.8 billion. This decline was driven by non-accrual loans, which declined by $155 million to $11.4 billion on improvements in several loan categories, including consumer and commercial real estate. Notably, oil and gas non-accruals grew by $277 million during the quarter.

Wells Fargo’s credit quality remains strong

Wells Fargo’s credit quality was strong during 4Q15, as the annualized charge-off rate remained low at 0.36%, complemented by a decline in non-performing assets. Charge-off rates are defined as the flow of a bank’s net charge-offs (gross charge-offs minus recoveries) during a quarter divided by the average level of its loans. The company’s charge-off rate included commercial losses of 0.16% and consumer losses of 0.56%.

Investors seeking exposure to US banks might consider investing in the Financial Select Sector SPDR ETF (XLF) or the Vanguard Financials ETF (VFH). Large banks like Wells Fargo (WFC), JP Morgan Chase & Company (JPM), Bank of America Corporation (BAC), and Citigroup (C) are well represented in the portfolios of both of these ETFs.

Continue to the next part of this series for a discussion of Wells Fargo’s Community Banking segment in 4Q15.

Advertisement

More From Market Realist

  • Honeywell sign
    Earnings Report
    CNBC Pro Stocks to Buy Before Q1 Earnings
  • Men walking by Morgan Stanley headquarters
    Financials
    Morgan Stanley’s (MS) Stock Forecast Before Q1 Earnings
  • Carnival cruise ship sailing
    Consumer
    Carnival's (CCL) Stock Forecast Before Q1 Business Update
  • GameStop store
    Consumer
    GME's Earnings Are Coming: Will It Be Mayday for Shorts or WallStreetBets?
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.