WELLS FARGO & CO. (New York symbol WFC; www.wellsfargo.com) set aside $652 million to cover bad loans in the three months ended June 30, 2013, down 63.8% from $1.8 billion a year earlier.
That helped push up the bank’s earnings by 19.7%, to $5.3 billion, or $0.98 a share. A year ago, it earned $4.4 billion, or $0.82 a share.
Revenue rose 0.4%, to $21.4 billion from $21.3 billion. Borrowers continue to refinance their mortgages at lower rates, which cuts Wells Fargo’s interest income. However, the bank is doing a good job of getting its clients to sign up for more services, such as credit cards and wealth management. As a result, income from fees and other sources rose 3.7%.
In addition, Wells Fargo continues to cut its operating costs, like salaries and rent. In the latest quarter, its efficiency ratio (non-interest operating expenses divided by revenue— the lower, the better) improved to 57.3% from 58.2% a year ago.
Investing in stocks: Wells Fargo passes Federal Reserve’s latest ‘stress test’ for banks
Wells Fargo recently passed the Federal Reserve’s latest “stress test,” which measures how well banks and other financial firms would cope with a sharp jump in unemployment, falling stock prices and other unfavourable economic conditions.
In response, the bank raised its dividend by 20.0%. The new annual rate of $1.20 a share yields 2.7%.
The company will probably earn $1.85 a share in 2013, and the stock trades at 12.4 times that forecast. The $0.90 dividend yields 3.9%.
In the latest edition of Wall Street Stock Forecaster, we look at whether cost-cutting measures and sales of new services to clients will help push up Wells Fargo’s earnings and let it raise its dividend even further. We conclude with clear buy-hold-sell advice on the stock.
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
When big banks in the U.S. suffered heavily in the aftermath of the 2007 subprime mortgage crisis and subsequent recession, Canadian banks came off looking much more safe and sound. What advantages do you think Canadians can gain by investing in U.S. banks? Have you had success with American bank stocks? Let us know what you think.
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