The big banks started the Q4 earnings season in earnest on Friday morning. It was not one of those booming shots that rises from the back of the final area. It was rather a blow from the wind that flirted with jumps outside the limits and left the opponent on offense in a decent position on the field. If you know what I mean. Oh, JP Morgan (JPM) broke the ball cap, as JPM Morgan is prone to. The stock trading was wonderful. The fixed income transaction went well. Banking investments were even better than trading. Wealth management and the commercial bank at least hit their weight. Consumer banking declined, but provisions for credit losses jumped beyond expectations.
Traders sold JPM on the news. They sold the whole group. I came in JPM long and, even with the beats this morning, I am still close to 40% on this investment. However, I also came to Wells Fargo (WFC) long and I was just a little bit at the time. Uh oh. Okay, let’s go there.
Wells Fargo reports
First of all, a lot is happening here. Why am I really in the name? Basically, for the belief that CEO Charles Scharf is the right leader to turn this bank around, to control spending, to regulate the company’s attention, to increase transparency for both the public and the regulators, and to restore a high reputation. the bank.
For the reporting period, Wells Fargo recorded an adjusted EPS of $ 0.70, which was a solid pace, and GAAP EPS of $ 0.64, also a pace. However, revenue generation was a painful point. The top line landed at $ 17.9 billion, down nearly 10% year-over-year and missing the mark by about $ 100 million.
The whole story becomes complex. As we know, Scharf is trying to give up non-core companies to reorient the company. On Thursday, Wells Fargo announced the sale of its Canadian direct equipment financing business to Toronto Dominion Bank (TD). No terms announced. In December, Wells Fargo agreed to sell the company’s student loan portfolio. Also Thursday, Reuters reported that Wells Fargo was engaged in talks to sell its asset management business, with investments valued at $ 607 billion to a group led by GTCR LLC and Reverence Capital Partners. The word is that the WFC is asking for more than $ 3 billion per unit. Most readers probably noticed the UBS update earlier this week, citing Scharf’s moves to become a more efficient bank.
Back to earnings report. I’ll tell you what I really liked. The firm managed to lower its loan loss provisions to $ 179 million from $ 769 million last quarter, largely due to the sale of its student loan portfolio. Now, what he does not like on the street. Average deposits remained at $ 1.4 trillion, while average borrowing fell to $ 899.7 billion from $ 931.7 billion last quarter. It is getting worse and this is a big one. Net interest income in the fourth quarter was $ 9.28 billion, which was below the estimated $ 9.4 billion. Wells Fargo also showed this morning that for fiscal year 2021, the company expects net interest income to print anywhere from flat to -4%. Remember that because this company had to climb out of a hole of its own, making it had to offer promotional interest rates “over the market” on deposits to attract and retain funds.
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Readers will notice that both the December 2019 to May 2020 sale and the June 2020 to November sale produced recoveries that hit solid resistance brick walls almost accurately at 38.2% Fibonacci retracements of those sales. Not the overbought reading for CSR with which this stock entered this earnings season after reacting positively to that “golden cross at the end of December 2020. Let’s increase it a little.
Now, let’s flip through the script a bit. With today’s defeat, the WFC addressed at least the tip of this gap created about two weeks ago. In my opinion, this gap may still need to be filled. This brings us close to a $ 38.25 withdrawal from this rally. See where I’m going with this. My bet is that some of these “smart” or “smart” algorithms do it. I’m not selling my Wells Fargo today (down 7% today, I’m down about 3% from the position), I intend to add, but I have to be patient. I think, based on my own past behavior of the action, I can pay between $ 30 and $ 31 for WFC if it’s just hard. I don’t have to pay $ 32 and change right now. If you are wondering, a $ 31 WFC expiring in seven days still pays about $ 1.30. Sounds like a business to me.
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