Why Wells Fargo’s 1Q16 Earnings Failed to Impress Investors



Earnings review

Wells Fargo (WFC) is the biggest mortgage lender in the US. It reported higher-than-estimated first quarter earnings on April 14. The EPS (earnings per share) beat Bloomberg consensus estimates of $0.97 and came in at $0.99. However, the EPS was 5.1% lower year-over-year. Wells Fargo delivered a consistent financial performance for the past few quarters. Its expectations were high. Wells Fargo’s low exposure to risky investment banking and trading businesses meant that global volatility impacted it less. However, its first quarter earnings failed to impress investors. Shares of the company fell 1.6% in the two trading days after the earnings.

Article continues below advertisement

Chairman and CEO John Stumpf said that “Full year and fourth quarter 2015 results demonstrated the benefit of our diversified business model as we again generated strong financial results, maintained our risk discipline and continued to invest across the company for future growth. We remained focused on the building blocks of long-term shareholder value with continued growth in loans, deposits, and capital.”

About the company

Wells Fargo has been the strongest among the “too big to fail” banks in the US for years due to its relatively low-risk exposure to global events and prudent management. It’s the third-largest bank in the US by assets and the second-largest bank in terms of deposits, home mortgage servicing, and debit cards. It operates under three segments—Community Banking, Wholesale Banking and Wealth, Brokerage, and Retirement. Its main competitors in the US are JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C).

Investors looking for exposure to these banks could invest in the Financial Select Sector SPDR ETF (XLF). Together these four banks have a weight of ~23% in XLF.


More From Market Realist