Influencing Factors for WELLS FARGO Earnings
expect the U.S. central bank to lift a damaging asset cap that has curtailed
growth at the lender amid signs of rising interest rates.
primarily focused on the lending business, has reined in costs as it grapples
with the aftermath of a sales practices scandal that first came to light in
2016 and forced the Federal Reserve to cap its assets at $1.95 trillion.
cap has restricted the loan and deposit growth needed to boost interest income
and cover costs at the country's fourth-largest lender, while rival balance
sheets have swelled.
unclear how much longer the cap would stay in place, but recent brokerage
action has been bullish, with Barclays last week saying it expects the lender
to benefit from "substantial progress" on its regulatory issues and
"That balancing act - cutting
expenses while maintaining service, controlling risk and avoiding adverse
publicity - is not an easy task. But for now, they appear once again to be on
plan," said Rick
Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.
"Investors are hoping that new
management has finally put the recent scandals behind them and can rehabilitate
what was once a premier banking brand."
Higher Interest Rate Environment.....
officials are highly concerned about the “elevated levels of inflation” and the
tighter job market. The officials are ready to get more aggressive in dialing
back the ultra-easy monetary policies, which were introduced in March 2020 to
support the U.S. economy from COVID-19 related slowdown.
This will mean a faster-than-previously expected increase in interest rates and
a reduction in the balance sheet size “soon after beginning to raise the
federal funds rate.” Per the CME FedWatch Tool data, at present, there is
almost 70% chance that the Fed will raise the interest rates by 25 basis points
a higher interest rate environment, banks are likely to remain in the
Since March 2020, banks have been witnessing contraction of the net interest
margin (NIM) due to the Fed's accommodative monetary policy and near-zero
interest rates. So, the faster-than-expected interest rate hikes will come as a
breather for banks and improve margins and net interest income (NII), which
constitutes a major portion of the revenues.
Also, the steepening of the yield curve (the difference between short and
long-term interest rates), robust economic growth and a gradual rise in loan
demand are set to drive margins and NII. Banks are taking initiatives to
restructure operations to diversify their footprint and revenue base. Efforts
to focus more on non-interest income are likely to bolster banks’ top-line
these favorable developments, investing in bank stocks will be highly
profitable, going forward – and San Francisco-based Wells Fargo is one of the
largest financial services companies in the United States which will benefit.
WFC had more than $1.9 trillion in assets and $1.4 trillion in deposits as of
Sep 30, 2021.
Agreement To Use A Blockchain-Based Solution.....
13, 2021, WFC and HSBC Bank plc announced an agreement to use a blockchain-based
solution for the netting and settlement of matched foreign exchange
transactions. The strategic agreement optimizes the settlement of foreign
exchange transactions and reduces settlement risk, leading to increasing demand
for their service.
continues to build on its deposits base, which witnessed a five-year CAGR of
(2016-2020) of nearly 2%, with the trend sustaining in the first nine months of
2021. With the solid economic recovery and resumption of business activities,
the deposit balance is likely to keep improving. This is likely to support
WFC’s liquidity position.
Wells Fargo’s prudent expense management initiatives support its financials.
The company is focused on reducing its expense base by streamlining
organizational structure, closing branches and reducing headcount by optimizing
operations and other back-office teams.
WFC’s net revenue decreased 2.5% year-over-year to $18.83 billion for the
fiscal third quarter ended September 30, 2021. However, its net income grew
59.3% year-over-year to $5.12 billion, while its EPS came in at $1.17, up 67.1%
assets grew at a CAGR of 1.4% over the past three years. Analysts expect WFC’s
revenue to decrease 2.8% for the quarter ending March 31, 2022, and 5.3% in
fiscal 2022. The company’s EPS is expected to decline 22.5% for the quarter
ending March 31, 2022, and 20.6% in fiscal 2022. However, its EPS is expected
to grow at a rate of 115.9% per annum over the next five years.
Raymond James and Evercore ISI are among the brokerages that named the bank
among their top picks, while CFRA Research expects Wells Fargo and Bank of
America Corp to benefit the most in the rising interest rate environment.