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.