Wells Fargo (NYSE: WFC) has been shaken by a series of scandals and punishments in recent years and the recent results were disappointing, to say the least. For example, in the second quarter, the bank revealed that both the deposit base and the credit portfolio are shrinking, while most other banks experienced impressive growth.
It could therefore come as a pleasant surprise for the shareholders that Wells Fargo looks like one of the first winners of the income season of the third quarter. Here is an overview of the headline figures, other important highlights and what investors can expect in the future.
The head numbers
First let's look at the head numbers. Wells Fargo's income actually missed estimates, reaching $ 1.13 per share versus the expectations of $ 1.17. Revenue beats estimates, but not so much, with a total of $ 21.9 billion from the bank in just $ 10 million for estimates.
That said, the top and bottom line numbers do not come close to telling us the whole story, so let's take a closer look.
The most important for Wells Fargo
Of course, all Wells Fargo investors want improved efficiency and profitability. However, these are not the most important issues for the time being to focus on.
Instead, the most important thing is that the scandals of the bank cause the company to lose business (which has been the case for the past few quarters) or that things are beginning to stabilize or even improve. And on this front the results look pretty positive.
Wells Fargo reported 1.7% more customers of payment accounts than last year and also said that the origin of cars & loans for small businesses increased by 10% and 28% respectively. Home equity originations grew 16% year on year, and personal loans and lines of credit also grew.
Deposits and loans are still lower than the previous year, but both are slightly less (less than 0.5%) lower than in the second quarter. And to be honest, with the Fed's fine, the bank can not yet concentrate on increasing its assets.
So even though we are still far from seeing real growth, the company seems to be moving in the right direction.
Rundown from other important statistics
Wells Fargo showed a significant improvement in most key areas of his revenue report. Here is a brief overview of some of the other highlights that investors should be aware of:
- The net interest margin of Wells Fargo continues to improve, with an improvement of one basis point compared to the second quarter. The rising environment has resulted in generally stronger margins for banks, but Wells Fargo was left behind until recently.
- After reporting a disappointing return of 10.6% on equity and a 1.10% return on assets for the second quarter, the third quarter of 12.04% ROE and 1.27% ROA of the bank would to satisfy investors' profitability.
- The efficiency ratio of 62.7% of Wells Fargo still leaves much to be desired, but this is a considerable improvement compared to 64.9% in the second quarter and 65.7% a year ago.
- Wells Fargo has purchased $ 6.8 billion of shares, more than three times the bank's buy back in the third quarter of 2017.
Will Well Fargo finally pass the scandals?
From a number of point of view, it seems that the consequences of the fake accounts scandal and Wells Fargo & # 39; s other problems are finally beginning to disappear.
While this is certainly welcome news for shareholders, you should bear in mind that the fine imposed by the Federal Reserve prohibits the bank from becoming larger than its assets from the end of 2017. Until the bank makes satisfactory improvements in the eyes of the Fed and the Fed cancels the fine, the upside potential of the bank will remain limited for the time being.
This is probably the reason why the Wells Fargo share price did not rise after the announcement of the profit – until the Fed's fine is lifted and Wells Fargo's growth potential returns, it can be difficult to invest in this bank into what might be the best growth environment for banks in decades.