Wells Fargo Earnings Rise 21%, to $4.1 Billion
Wells Fargo, the nation’s largest consumer lender, reported Monday that its third-quarter earnings rose 21 percent, even as a drop in revenue indicated a disappointing sign for the San Francisco-based bank.The bank turned a $4.1 billion profit in the third quarter, or 72 cents a share, bolstered by gains in its lending and deposit division and its lack of exposure to the volatile investment banking business. That compared with a profit of $3.3 billion, or 60 cents a share, in the same period a year earlier. The figures, also aided by an $800 million release in reserves amid easing loan losses, fell just below the analysts’ consensus estimate of 73 cents a share.
The bottom line improvement was somewhat overshadowed by the lack of top-line growth. The bank’s revenue fell to $19.6 billion, from $20.9 billion, reflecting the banking industry’s broader struggles generating growth as the economic recovery stalls and the markets wildly fluctuate. Investors frowned on the report, sending the bank’s shares down more than 8 percent to close at $24.42, a loss of $2.25. “The economic recovery has been more sluggish and uneven than anyone anticipated,” the bank’s chairman and chief executive, John Stumpf, said in a statement. “They can’t change the economic environment, yet they have worked hard to control the variables, can – making their products and services more relevant to individuals and businesses, focusing on the customer, making as many loans as possible and growing new relationships – as well as fostering longtime ones.”
The strong profit numbers at Wells Fargo bucked the generally grim outlook facing the industry, as big banks struggle to shed the legacy of the mortgage crisis and cope with poor investment banking figures. JPMorgan Chase last week kicked off bank earnings season by reporting a 4 percent drop in profit. Bank of America, which will announce its earnings on Tuesday, has racked up billions of dollars in losses over the last few quarters. And some analysts expect Goldman Sachs, once appearing immune from the industry’s woes, to report a quarterly loss, only the second since the company went public 12 years ago.
While competitors have struggled, Wells Fargo has remained relatively healthy. Profit has grown quarter after quarter. Following the takeover of the Wachovia Corporation at the height of the financial crisis, it established a network of retail branches along both coasts.Still, Wells is not immune from the industry’s turmoil. The bank reported disappointing revenue numbers across its operation. The community banking division, which includes Wells Fargo’s branches and mortgage business, experienced a 7 percent drop in revenue, while revenue declined slightly in the bank’s retail brokerage unit.
While it is no secret the banking industry is struggling, investment banking results have been especially hard hit. Trading revenue, in particular, is hurting from the unnerving volatility in the markets.
Wells Fargo does not break out its investment banking results, but the wholesale banking unit, which includes the sales and trading business along with the corporate lending division, had a 4 percent decline in revenue. The bank attributed the drop to weak fixed-income sales and trading.
But it could have been worse. Wells Fargo features a far smaller investment bank than most of its big rivals, so it is less exposed to the difficult market conditions that, for instance, caused JPMorgan’s third-quarter investment banking profit to tumble 20 percent.“Investment banking is a boom and bust business, and right now it’s bust,” said Brian Foran, a senior analyst at Nomura Securities International. He noted that it “helps” banks like Wells that are not deeply entrenched in the business.
Wells Fargo’s biggest unit by far is its community-banking arm, which reported a 7 percent drop in revenue, as mortgage banking income slowed and the bank battled the choppy markets.But earnings at the unit leapt 20 percent compared with the third quarter of 2010. Unlike competitors that had a heavy hand in the mortgage business during the toxic subprime boom, Wells Fargo enforced tougher standards for borrowers and only revved up its lending following the 2008 takeover of Wachovia. Wells Fargo has since quietly emerged from the mortgage mess as one of the nation’s largest and strongest lenders.
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Wells Fargo Earnings Rise 21%, to $4.1 Billion
Investors to manufacturers: what about next year?
“Forget about where you’ve been. Tell us where you’re going.”
That’s the message from investors to big U.S. manufacturers ahead of a wave of earnings reports over the next few weeks. They will be far less interested in hearing how the third quarter went than what companies expect next year to be like and how they are preparing for it.
While early earnings reports from big companies including Alcoa Inc and JPMorgan Chase & Co disappointed investors, analysts are still expecting the industrial sector to chalk up solid third-quarter profit growth of 15.2 percent across the sector, above the 12.5 percent forecast for the full Standard & Poor’s 500 index.
Chief executives are likely to push back on questions about their 2012 outlooks — big companies including General Electric Co, United Technologies Corp and Honeywell International Inc typically wait until December to discuss their forecast for the next year. But some investors say the European debt crisis and signs of slowing demand will make them eager for an earlier update.
The memory of the sharp downturn following the late 2008 credit crunch is still fresh in their minds.
“Are managements going to retrench as quickly and as deeply in the event of a credit moment in Europe or China as they did last time around?” said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio. “What we want to hear is a dose of reality. What are you planning, what’s your contingency, what are you actually seeing?”
This comes as CEOs of many big U.S. companies say orders are holding up, and one of the main risks they see is that customers will start holding off on orders out of fear that something might happen to hurt the economy.
“There is just not enough certainty and in some ways the most important thing we can do right now is social and it has to do with rebuilding confidence,” GE CEO Jeff Immelt told a group of executives from mid-sized U.S. companies in Columbus, Ohio last week.
Immelt is due to speak at a Thomson Reuters Newsmaker event in New York on Monday.
GOOD NEWS, BAD NEWS
Heading into the reporting season, not every company has offered a positive view of how the third quarter went.
Ingersoll Rand Plc fired a warning shot, saying that profit could be down for the quarter, as demand for heating and cooling equipment that it had earlier expected in North America failed to materialize.
But Honeywell confirmed its outlook, saying it expected to come in at the high end of its forecast on strong demand for turbochargers and automation and control equipment.
Several factors are working in big manufacturers’ favor: One is that the price of a wide range of metals have fallen, easing pressure on profit margins. The price of copper, particularly important as it used for all sorts of wiring, fell by 25 percent in the third quarter.
Another is that many big industrials, including GE, United Technologies and ITT Corp now generate a significant portion of their revenue from maintenance of the products they sell, and that business tends to hold up even when new-equipment sales fall.
But the risks are also clear. With growth at home sagging, U.S. multinationals have been counting on foreign demand to drive results. Europe’s economies are being rocked by a sovereign-debt crisis and China is showing signs of slowing.
Analysts, on average, have forecast slower growth for big manufacturers in the third quarter versus the first half of the year, according to Thomson Reuters I/B/E/S.
Among blue-chip names, for GE, they look for earnings to rise 10.7 percent; for United Technologies they see 11.5 percent; for Caterpillar Inc 27 percent, and for 3M Co 5 percent.
In addition, some investors say Wall Street’s worries may have gotten ahead of reality. The S&P capital goods index has fallen some 14 percent over the past six months, a steeper slide than the 8 percent decline of the broad S&P 500.
“We don’t believe there’s going to be a double dip. We do believe we’re in a slow recovery, but this market is behaving like it’s got bipolar disorder,” said Scott Schermerhorn, portfolio manager with Granite Investment Advisors Inc in Concord, New Hampshire, which manages about $500 million in investments and is currently underweight in the industrial sector.
“The reason we scaled back on industrials was they were ahead of themselves,” Schermerhorn said. “Now we view industrials as attractive again and we’re actively looking in that space.”
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Investors to manufacturers: what about next year?
Citigroup earnings rise 74 percent, to $3.8 billion
Citigroup’s strategy of slimming down and focusing on a few core businesses is paying off.
The New York bank reported third quarter earnings rose 74 percent in the third quarter, to $3.8 billion, due to lower losses from loans and an accounting gain. Its international consumer lending business grew in Asia and Latin America. The bank also decided to keep its credit card partnership with retailers as that business improved.
The improvement in Citi’s earnings come as the buildings of financial institutions are being stormed by protesters of the Occupy Wall Street movement. Two dozen people were arrested after they entered a Citibank branch in New York on Saturday and refused to leave.
Last week Vikram Pandit, CEO of Citigroup, said he understands the sentiments of the protesters and was willing to meet with them. Citi spokesman Edward Skyler said no one had reached out from the organizers to talk with Pandit yet.
Citi’s earnings were better than Wall Street analysts expected. Citi’s stock rose 1.4 percent to $28.80 as of 11:15 a.m., even as other banks stocks fell as part of a broad decline on the stock market. Citi is the nation’s third-biggest bank measured by assets.
Citi’s losses from bad loans fell 41 percent during the quarter to $4.5 billion as defaults fell from its credit card loans for Citi-branded cards. That allowed Citi to add $1.4 billion to its earnings from credit reserves it set aside for deeper losses.
Citi’s income also included a $1.9 billion accounting gain related to its credit holdings. The paper gains are related to a drop in the value of banks’ liabilities, which have to be recorded as an earnings gain according to accounting rules.
The New York bank earned $1.23 per share and its revenue edged up 1 percent to $20.86 billion.
Excluding the gain, the earnings were equivalent to 84 cents per share. Analysts surveyed by FactSet predicted Citigroup would earn 82 cents per share. Excluding the accounting gain, Citi’s revenue fell 8 percent from the same period last year.
The bank’s international consumer business increased 10 percent due to growth in Asia and Latin America.
Its North American consumer business fell 9 percent from a year ago due mainly to lower average balances on its credit cards. Revenue in the card business also fell due to regulations that limit the ways banks can increase interest rates and fees.
Citi said it now plans to hold on to its private-label credit card unit, which issues cards in partnership with retail stores. Earlier Citi had said it was planning to either sell or pare down the unit. Pandit said in an internal memo to employees the business earned $2.2 billion so far this year as delinquencies declined.
Citi said its stock and bond trading business was hurt by uncertainty in financial markets due to the debt crisis in Europe and a downgrade of the U.S. government’s credit rating in August.
Fixed income revenues fell 33 percent to $2.3 billion, and equity revenue fell 73 percent to $289 million. Investment banking revenue fell 21 percent as fewer companies issued stocks and bonds or made acquisitions.
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Citigroup earnings rise 74 percent, to $3.8 billion
ECB heaps pressure on euro govts
The European Central Bank’s departing chief economist says that the way to avoid another eurozone debt crisis is much tougher European Union control over nations’ budgets and their ability to spend and borrow. Officials in the 17 countries that use the euro are struggling to contain a crisis in which some countries have run up too much debt and are seen as in danger of not making their bond payments. That could cripple banks that hold the bonds — and ultimately the economy. Greece, Ireland and Portugal have needed to be bailed out by other governments because default fears left them unable to borrow affordably.
The European Central Bank’s outgoing president laid the onus firmly on governments to resolve the debt crisis on Friday said that the bank had done “all it could”, although analysts said the door was still open to a cut in interest rates this year.At a time when the Bank of England and the Federal Reserve are taking further emergency steps to bolster the economy, President Jean-Claude Trichet’s ECB has indicated that it wants to return to a narrower focus on pure inflation-fighting.
There are questions over whether that will remain the case when Trichet is replaced by Italy’s Mario Draghi next month, with a broader effort to end the euro zone’s debt crisis in the offing and the bank’s role still in question.”The ECB has done all it could to be up to its responsibilities in exceptional circumstances,” Trichet told the Financial Times. Trichet made the comments on the eve of a meeting of G20 finance officials in Paris, piling pressure on the euro zone’s leading economies to act to end the crisis that is unnerving markets and threatening to tip the bloc into recession.
Fellow ECB policymaker Erkki Liikanen echoed Trichet’s view, stressing that the ECB will not intervene indefinitely with its bond-buy plan — a major part of its contribution to fighting the crisis which it has used to ease government borrowing costs.”The ECB has stated it is temporary in nature,” Liikanen said of the bond-buying programme. That was the same language that the bank has used throughout the past year on the programme, but also comes at a time when the ECB is engaged heavily in propping up Italian and Spanish bond markets.
If Greece is pushed into default, the ECB could no longer accept its government bonds as collateral from Greek banks reliant on the ECB for funds, the FT reported Trichet as saying, meaning other euro zone governments would have to backstop Greece’s financial system.
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ECB heaps pressure on euro govts
Most actively traded companies on the TSX, TSX Venture Exchange markets
Some of the most active companies traded Friday on the Toronto Stock Exchange and the TSX Venture Exchange:
Toronto Stock Exchange (12,081.73 up 169.84 points):
Osisko Mining Corp. (TSX:OSK). Miner. Up 20 cents, or 1.64 per cent, at $12.40 on 11,427,251 shares.
Daylight Energy Ltd. (TSX:DAY). Oil and gas. Unchanged at $9.75 on 9,397,080 shares.
Bombardier Inc. (TSX:BBD.B). Transportation equipment. Up three cents, or 0.75 per cent, at $4.05 on 9,243,439 shares.
Suncor Energy Inc. (TSX:SU). Oil and gas. Up $1.55, or 5.32 per cent, at $30.69 on 7,309,338 shares.
Auryx Gold Corp. (TSX:AYX). Miner. Down two cents, or 2.70 per cent, at 72 cents on 7,101,857 shares.
Yamana Gold Inc. (TSX:YRI). Miner. Up 44 cents, or 2.94 per cent, at $15.39 on 6,104,108 shares.
TSX Venture Exchange (1,557.61 up 24.98 points):
PMI Gold Corp. (TSXV:PMV). Miner. Up 45 cents, or 77.59 per cent, at $1.03 on 13,972,289 shares.
Rodinia Oil Corp. (TSXV:ROZ). Oil and gas. Down 51.5 cents, or 66.88 per cent, at 25.5 cents on 11,074,332 shares.
Companies reporting major news:
Torstar Corp. (TSX:TS.B). Media. Up 29 cents, or 3.07 per cent, at $9.73 on 24,094 shares. The newspaper, web and book publisher says it has increased its stake in the English-language free daily Metro newspaper chain to 90 per cent in a deal worth $51.5 million.
Royal Bank of Canada (TSX:RY). Down 12 cents, or 0.25 per cent at $47.70 on 3,216,269 shares. The bank said Friday it will lease its new headquarters, to be called RBC WaterPark Place, from joint venture partners Oxford Properties Group, the real estate arm of the Ontario Municipal Employees Retirement System, and the Canada Pension Plan Investment Board. Based on square footage prices for downtown Toronto, the price tag is estimated to be in the hundreds of millions of dollars. More than 4,000 RBC employees are expected to move into the new space beginning
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Most actively traded companies on the TSX, TSX Venture Exchange markets