Specifically, EPS came in at $1.08, missing the $1.12 consensus. With the miss, WFC has now failed to meet analysts' earnings expectations in two of the past four quarters. JPM, on the other hand, has strung together eleven straight EPS beats, while C has beaten analysts' earnings expectations for ten quarters in a row.
WFC has also faced its fair share of scrutiny this year, including:
- An April 9 report that the Consumer Financial Protection Bureau was investigating auto insurance and mortgage lending abuses. WFC was then hit with $1 bln in fines.
- An April 26 report that WFC's 401(k) practices were being probed by the Labor Department.
- A May 4 report that WFC has reached an agreement to resolve a securities fraud class action lawsuit in which it would pay $480 mln in fines.
While these events don't necessarily impact its day-to-day
operations, they do have the potential to tarnish its reputation among
consumers. Ultimately, what it comes down to is simply better execution from
the management teams of its' competitors.
Circling back to its Q2 report, revenue came in at $21.6 bln, down 3% year/year, and slightly missing the $21.55 bln estimate. Net interest income inched higher by 1% to $12.5 bln while net interest margin improved modestly by 9 basis points to 2.93%. The increase was driven by a reduction in the proportion of lower yielding assets, as well as a less negative impact from hedge ineffectiveness accounting and the net benefit of rate and spread movements.
The highlight of the quarter is that residential mortgage loan
originations increased by $7 bln over the first quarter to $50 bln. Last
quarter, residential loan originations declined by $10 bln. Furthermore,
applications hit $67 bln, also up from $58 bln the prior quarter -- although
seasonality played a major role in the increase. All in all, though, the
performance in its home lending segment was positive and encouraging.
Unfortunately, WFC saw its auto loans drop by $1.9 bln, due to an expected continued run-off, and its junior lien mortgage portfolio also declined by $1.4 bln as payoffs exceeded new originations. In total, average loans across WFC fell by $6.9 bln to $944.1 bln.
Taking a look at the stock action in early trading, shares are off by about 2.5%, but are finding support at the $54-$55 area. It's also worth pointing out that WFC recently announced that it is increasing its dividend to $0.43/share from $0.39/share, and, that its recently approved 2018 Capital Plan includes up to $24.5 bln in gross common stock repurchases -- both of which should also be supportive and offer some downside protection for the stock.