WELLS FARGO & CO. $55(New York symbol WFC; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 5.1 billion; Market cap: $280.5 billion; Price-to-sales ratio: 3.3; Dividend yield: 2.7%; TSINetwork Rating: Average; www.wellsfargo.com) operates through three divisions: Community Banking provides mortgages, loans, credit cards and other financial services (57% of 2014 revenue, 59% of earnings); Wholesale Banking supplies business loans (27%, 32%); and Wealth, Brokerage and Retirement offers wealth management, brokerage and trust services to individuals and institutions, such as pension plans (16%, 9%).
The bank gets 95% of its revenue from the U.S.
Wells Fargo recently agreed to buy the commercial lending and leasing operations of GE Capital, the financing division of General Electric (see box). These businesses offer loans to help manufacturers boost their inventory, as well as other forms of financing.
The bank didn’t say how much it would pay, but these businesses have $32 billion in assets (mainly loans). Wells Fargo expects to close the deal in early 2016.
Meanwhile, the bank earned $5.44 billion in the three months ended September 30, 2015, up 0.6% from $5.41 billion a year earlier. Per-share earnings rose 2.9%, to $1.05 from $1.02, on fewer shares outstanding. Revenue gained 3.1%, to $21.9 billion from $21.2 billion. Low interest rates continue to spur demand for mortgages, car loans and business loans. Wells Fargo set aside $703 million to cover future bad loans, up 91.0% from $368 million a year earlier.
That’s mainly because the bank did not take back funds it had previously set aside for loan losses, compared to the $300 million it took back a year earlier. Low oil prices are also increasing the risk on loans it made to oil and gas producers.
Even so, bad loans accounted for just 1.47% of the Wells Fargo’s total as of September 30, 2015, down from 1.93% from a year ago.
The bank will probably earn $4.16 a share in 2015, and the stock trades at 13.2 times that forecast. The $1.50 dividend yields 2.8%.
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