Needing a Boost, Wells Fargo May Be Left Behind on Earnings -- Ahead of the Tape
DOW JONES & COMPANY, INC. 12:54 PM ET 10/12/2016
Symbol Last Price Change
WFC 45.655up +0.205 (+0.45%)
QUOTES AS OF 12:55:11 PM ET 10/12/2016
A rebound in trading activity likely helped Wall Street banks get through a tough third quarter. But that will be little use to Wells Fargo(WFC), the bank in biggest need of a confidence boost at the moment.
Three of the nation's biggest lenders, J.P. Morgan Chase, Wells Fargo(WFC) and Citigroup, are all set to report earnings early on Friday. Expectations are low, as banks are still being buffeted by ultralow interest rates. According to FactSet, analysts expect year-over-year earnings-per-share declines of 18%, 4%, and 15% at the three banks, respectively.
In the first half of the year, big banks were hit by weak markets, but bolstered by strong lending growth. That pattern has started to reverse. Commercial and industrial loan growth slowed unexpectedly in the third quarter, Federal Reserve data show. This is especially worrying for midsize, regional lenders that tend to rely most on commercial loans.
J.P. Morgan and Citigroup will be less affected because they have rapidly growing businesses in credit cards and other consumer lending, as well as trading and capital-markets revenue, that help offset the slowdown in commercial lending.
The biggest swing in the third quarter was in global bond and currency markets, which jolted back to life after a dull first half. A surge in volatility after the Brexit referendum helped, as have shifting expectations for monetary policy in the U.S., Europe and Japan. Data from the Securities Industry and Financial Markets Association show that average U.S. bond-trading volume rose 4.8% from a year earlier in the third quarter after being basically flat in the first half.
Wells Fargo (WFC) has made forays into capital markets, but compared with other banks its size, it is much more of a plain-vanilla bank. That has been a relative strength when markets are sluggish. But now, as Wells Fargo(WFC) curtails its aggressive retail-sales tactics, it increasingly looks like a weakness.
Despite recent declines, Wells Fargo(WFC) is still richly valued at 1.3 times book value, compared with 1.1 times for J.P. Morgan and 0.7 times for Citigroup. That premium seems less justified with every passing day.
(END) Dow Jones Newswires
10-12-161254ET
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