For Wells Fargo, A Beat, But Ominous Signs in Consumer Metrics

It wasn’t much of an earnings hurdle to cross, but Wells Fargo cleared it.

Investors were non-plussed, with the stock down less than a percent in early Friday trading.

The company logged $1.03 a share on earnings, with a two penny beat on analyst expectations.  The revenues posted, at $22.3 billion, were just over the $22.2 billion that had been projected by the Street.  Those are headline numbers, of course, and come in a period where the bank faced a series of high profile scandals, centered around two million sham accounts set up to meet internal targets — an apparently long standing practice that led to the firings of more than 5,300 employees, and just this week, the retirement of CEO John Stumpf.

Headlines tied to the scandals may have had an impact on the consumer side of the business, with checking account openings off 25 percent year over year, and credit card applications down only a bit less, sliding 20  percent, with mortgage referral business also off double digit percentages.

Looking at the operating structure of the firm, one metric stands out: The efficency ratio stood at 59.4 percent, higher than the 55 percent to 59 percent range that the bank tends to target, and the firm says that level will be “elevated” which of course implies profit margin pressure.  Total loans were up a little more than $4 billion sequentially, with consumer and commercial loans as drivers to a total of $957 billion.  As has been seen sectorwide within banking, oil and gas remain sore spots in the lending book, with total bad loans recorded at $1.1 trillion, a tripling from a year earlier.

Yet it is likely that investors will focus less on the details tied to the rearview mirror an more to the future, as new leadership takes the helm.  Newly installed CEO Tim Sloan said in a statement tied to the earnings release that he remains “committed to restoring the trust of all our stakeholders,” and the heavy lifting remains ahead.  In the meantime, as part of the earnings presentation, Wells Fargo offered up details on an independent review that had been conducted into the deposit and credit card sides of the business.