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Wells Fargo & Co WFC

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Net Interest Income a Bit Tight, but Fees Are Good and Expenses Remain on Track for Wells Fargo

Eric Compton, CFA Senior Equity Analyst

Analyst Note

| Eric Compton, CFA |

Wide-moat Wells Fargo reported OK second-quarter earnings. While the bank easily exceeded FactSet consensus of $0.98 with reported EPS of $1.38, the beat was primarily driven by reserve releases, which is only a temporary source of higher earnings. Reported return on tangible common equity was 16.3%. The bank continued to release reserves, releasing another $1.6 billion in the quarter. If we assume provisioning would have been closer to the 2019 run rate of roughly $670 million, ROTCE would have been closer to 12%, and if we bring the gains on equity securities down to a $500 million run rate, we estimate the ROTCE would fall closer to 8.4% . This is an improvement over the 8% normalized rate we calculated last quarter, but the bank still has a way to go to hit the short-term goal of 10%. Now, while 10% may seem like a long way off, keep in mind that bringing capital levels down to management’s goal of a 10.5% common equity Tier 1 ratio should improve ROTCE by roughly 100 basis points, give or take, which gets the bank within spitting distance of the 10% goal. Management did say that it expects to hit a 10% ROTCE at some point in 2022.

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Company Profile

Business Description

Wells Fargo is one of the largest banks in the United States, with approximately $1.9 trillion in balance sheet assets. The company is split into four primary segments: consumer banking, commercial banking, corporate and investment banking, and wealth and investment management. It is almost entirely focused on the U.S.

Contact
420 Montgomery Street
San Francisco, CA, 94104
T +1 866 249-3302
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 268,531

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