What Wells Fargo says about the economy

The bank's mortgage business was great in the first quarter, but the lending business was a different story.

By Jim J. Jubak Apr 16, 2012 4:21PM
Half a loaf from Wells Fargo (WFC) Friday morning. The bank reported first quarter earnings of 75 cents a share. That was 3 cents a share above Wall Street estimates and a 12% increase from the 67 cents a share that the company earned in the first quarter of 2011. (Earnings were bolstered by $400 million release from reserves against bad loans in the quarter.) 

Revenue climbed -- a novelty in the banking industry lately -- by 5% from the first quarter of 2011 to $21.64. Wall Street analysts were expecting $20.5 billion in revenue.

But the strength of the story this quarter really depends on what part of Wells Fargo you looked at.

Wells Fargo's CFO talks about the business in the following interview.

Post continues below.
The mortgage business went great guns in the first quarter, with the bank originating $129 billion in mortgages. That was an increase of 7.5% from the $120 billion originated in the fourth quarter and a 54% increase from the $84 billion originated in the first quarter of 2011. This is the kind of performance from the bank's mortgage unit that investors who have bid up the shares 24% for 2012 through the April 12 close were expecting. Wells Fargo’s mortgage business should be taking advantage of a retreat in the mortgage market from competitors such as Bank of America (BAC) -- and it is.

The bank's lending business wasn't anywhere near that strong a story. Core loans grew by just 0.1% from the fourth quarter of 2011. Commercial loans were almost flat, growing by just 0.1%. Total consumer loans actually fell, albeit very slightly, in the quarter from the fourth quarter of 2011.

Shares fell on Friday by 3.5% but that doesn’t seem to be so much a result of disappointment as a reaction to the lack of any real good news surprises after a 24% gain in 2012. As of 2:15 p.m. New York time Monday, the stock is up 1.5%.

If you're looking at Wells Fargo as an indicator on the economy, I think the take is this: These are the kind of numbers a good bank generates when the economy is growing slowly and regulators are tightening standards after a financial crisis.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own shares of Wells Fargo as of the end of December. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.

Apr 16, 2012 6:40PM
I know why they showed gains....because they are nickel and diming for everything now! They even keep charging me monthly fees every month when my accounts clearly fit under their "Free" criteria. 
Apr 17, 2012 7:01AM
wells fargo is the worst run bank in the country. they quitely slipped throught the cracks during the bank bailout and took a ton of tax payers moneys and then quietly showed a false profit. I would rather  live in a tent the borrow money from wells fargo.  They are stealing everydime they can from there custormers in fees and by blackballing there new custormers  with low ball appraisals. I just had to bail my son out from these crooks and get him in dealing with our local bank for a mortgage instead for wells steal and go. They low balled his appraisal and then were trying to force him to come up with another 15k in cash or pay PMI in order to get the loan. PMI for those who dont know is bank owned insurance that is so expensive that it would bleed middlclass man dry in less then a year. funny our local credit union even said what they were doing was crap but by no means is illeagle. one of those known about but never addressed problems our dictator in office was going to fix when he was voted elpresidente but never said another word about after his office began becuse the bank is in his pocket so deep they can count the threads at the bottom of the cash wad.
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