“Wells Fargo’s first quarter results reflected the benefit of our diversified business model as we managed challenges presented by a volatile operating environment for our industry”, said CEO John Stumpf in a statement. Analysts had pencilled in revenue for Wells Fargo of $21.61bn. Global stocks logged solid gains Wednesday, April 13, 2016, after the first rise in nine months in Chinese exports suggested an improving outlook for the world’s second largest economy. The firm had 6,475 fewer workers and 146 less branches at the end of the first quarter than it did a year earlier. Nonaccrual oil and gas loans rose by $1.1 billion to $1.9 billion. Despite this, investors are still very bullish on this bank.
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The bank was also able to maintain a strong capital position; its Common Equity Tier 1 (fully phased-in) was reported to be $142.7 billion. But last quarter’s wild markets did the opposite. Bank of America’s net charge-off ratio, which is how much of their loans they believe are not recoverable, fell to 0.82 percent from 0.95 percent a year earlier.
Analysts on average had expected earnings of 20 cents per share, according to Thomson Reuters I/B/E/S.
U.S. shale oil companies have come under increasing pressure in the past year as the price of oil has plummeted.
Energy remains a drag for Wells Fargo (WFC), which charged off $204 million in energy loans in Q1, up about 75% from Q4, and added $200 million to its energy loan-loss reserves, while the tally of oil sector bankruptcies climbed higher with a filing Thursday from Energy XXI (EXXI).
Dick Bove, a banking analyst at Rafferty Capital, said there’s “no question” banks are being pressured by the oil crash. Last year, during this time, the bank reported a net income of $5.8 billion, or $1.04 per share and in the fourth quarter of 2015 it reported $5.6 billion in income, or $1.00 per share.
Bank of America and Wells Fargo posted lower quarterly profits and increased reserves to cover bad loans from their energy portfolios.
While Bank of America has shown some progress, it still has to prove it can generate consistent performance under Chief Executive Brian Moynihan, who took the helm in 2010.
Daily Journal Corp holds 66.1% of its portfolio in Wells Fargo & Co for 1.59 million shares.
Citigroup (NYSE:C) has been among the banks trying to prepare investors for an earnings dip.
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In terms of trading revenue, each of these banks was hit during a very bearish first quarter. Revenue increased 0.93% year-over-year to $21.6 billion vs the $21.8 billion consensus. Goldman Sachs (NYSE:GS) in a research note has already pointed out that 80% of the bank’s investment in the sector is in two of the riskiest subsectors, being exploration and production.
