uploads///piggy bank _

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

By

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.

Article continues below advertisement

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.

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.