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Wells Fargo 1Q numbers - Slightly down from last year

As promised here is some commentary on Wells Fargo's 1Q numbers which came out yesterday before the market opened. The numbers beat expectations but were lower than last year this time, the end result on the stock price was a 0.5% decline. A quick run down of the important numbers, Revenues were $22.2 billion, resulting in a profit of $5.46 billion and a diluted earnings per share of 99c (last year they were $1.03 per share). Part of the reason for the drop in profits is due to an increase in credit loss provisions from $608 million to $1.09 billion and the $1.2 billion fine we spoke about on Monday.

One of the concerns for the banking sector and especially Wells Fargo is their exposure to the Oil & Gas industry. As oil prices fall, bad debts are on the rise. At the end of the quarter Wells Fargo had $947.3 billion in loans of that 1.9% was to the Oil & Gas industry, so just short of $18 billion in loans. The number itself is huge but in the grand scheme of things not so significant, the company also has set aside provisions for around 10% of the loans. Nothing to be alarmed about on this front yet.

Some interesting figures from the results are, they have $1.4 trillion sitting in retail brokerage accounts and credit card volumes increased by 13% to $17.5 billion, so good news for the likes of Visa. They have $1.2 trillion in deposits, up 4%. The scale of this company is mind boggling, especially if you consider that the total money spent in South Africa in a year is around $350 billion.

The stock is down 10% YTD, mostly thanks to interest rate hikes not coming around as soon as hoped for. As interest rates go up, banks make more money because the interest that they pay for deposits normally remains flat but the interest they get on loans goes up. Even though interest rates are going up slower than expected, I would still own this company. Their prospects are closely linked to the US economy which is strong and looks to be strong for the foreseeable future. Don't expect this stock to shoot the lights out but will continue to show steady growth and a good payout of net income to shareholders, in the last quarter the company returned $3 billion in the form of dividends and buy-backs. Buy if you are looking for a good old fashioned blue-chip.


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