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Wells Fargo & Co WFC

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Tough Q4 as Wells Fargo Reveals New 2021 Guidance; Long-Term Targets Reaffirm Our Overall Thesis

Eric Compton, CFA Senior Equity Analyst

Analyst Note

| Eric Compton, CFA |

Wide-moat Wells Fargo reported OK fourth-quarter earnings per share of $0.64, roughly in line with FactSet consensus of $0.59. This equates to a return on tangible common equity of 8%. As expected, results weren’t pretty, and there was a lot to digest, but overall, several important items were where we wanted them. Quarterly revenue was down 10% year over year, driven by a net interest income decline of 17%, while expenses were down 5%. One disappointment for us was NII, as additional mortgage-backed securities amortization and a declining loan book pushed NII lower than we expected in the quarter, and the guidance for 2021 was a bit lower than we were hoping. Management now expects NII declines of 0%-4% in 2021 compared with an annualized 2020 fourth-quarter run rate, implying a full-year decline of roughly 8%-11% in 2021. The asset cap is still hurting, as Wells can’t expand its balance sheet to offset net interest margin pressure. The asset cap also ate into fees as trading income was down while peers were seeing growth. 

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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 three segments for reporting purposes: community banking; wholesale banking; and wealth and investment management. The community banking segment serves consumers and small businesses with products including deposit accounts, credit and debit cards, and student, mortgage, and home equity loans. Wholesale banking includes corporate and commercial real estate lending, asset-based lending and trade financing, merchant services, and capital markets businesses. Wealth and investment management includes advisory, brokerage, retirement, and trust services. The bulk of Wells' lending takes place in the U.S.

420 Montgomery Street
San Francisco, CA, 94163
T +1 866 878-5865
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type Cyclical
Employees 262,800