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Should Buffett Worry about Wells Fargo’s Weak Q4 Revenue?


Jan. 15 2019, Updated 12:25 p.m. ET

Wells Fargo

Earlier today, Wells Fargo & Company (WFC), America’s third-largest bank in terms of assets, reported its fourth-quarter earnings results. The bank’s adjusted EPS stood at $1.18 in the quarter, up ~21.6% compared to $0.97 in the fourth quarter of 2017.

With this performance, Wells Fargo managed to beat analysts’ consensus EPS estimate of $1.17 as cited by Reuters. However, all was not well with the bank in the quarter. Let’s take a closer look.

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Revenue fell

In the fourth quarter of 2018, Wells Fargo’s adjusted net profit came in at $5.5 billion, up ~17.0% YoY (year-over-year). However, higher interest expenses and lower revenue took a toll on its net profit on a generally accepted accounting principles basis.

The bank reported a 4.9% YoY fall in its fourth-quarter revenue to ~$20.98 billion from $22.05 billion a year earlier. It blamed declines in market-sensitive revenue and mortgage banking income for the fall in its revenue. Wells Fargo’s fourth-quarter revenue also fell 4.4% sequentially.

Should Buffett worry?

In the third quarter, billionaire investor Warren Buffett’s Berkshire Hathaway (BRK.B) reduced its position in Wells Fargo to ~45.20 million shares by selling ~9.65 million shares. Nonetheless, the stock was still Berkshire’s third-largest holding, with a stake value of $23.25 billion as of the end of the third quarter. This marked the fourth consecutive quarter during which Wells Fargo’s revenue reflected a mixed to a negative trend, which could hurt investor sentiments and drive the stock lower. Such a development could be worrisome for Buffett, as Berkshire’s bets on the bank were high at the end of the third quarter.

At 11:46 AM EST, Wells Fargo was trading with a 1.8% loss against the 0.8% gain in the S&P 500 Index (SPY). At the same time, its peers (VFH) (KBE) Bank of America (BAC), JPMorgan Chase (JPM), Morgan Stanley (MS), and Citigroup (C) were up 0.2%, 0.1%, 0.4%, and 4.1%, respectively.


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