• 13 Apr 2009 at 2:17 PM

Dry Wells?

By Equity Private

Remember how Wells Fargo jumped 30% or so on pre-earnings guidance? Yeah, it made us cross eyed too. Well, about as expected, a number of commentators have pointed out that a good slug of their “profit” seems to be composed primarily of one time accounting dance steps.

Last week, Wells Fargo & Co (WFC: 19.50 -0.56%) pre-announced $3bn in expected profit and growth for the first quarter of 2009, along with growth in a closely-watched earnings ratio known as tangible common equity. The stock soared over 30 percent on the incomplete earnings news, with an official announcement due later this month. Some analysts have questioned the results, as both loan loss reserves and charge-offs came in unexpectedly low, helping the bank boost reported profits.
It appears, however, that as much as nearly one-third of the bank’s first quarter earnings may be nothing more than the result of an accounting treatment; without such a move, tangible common equity would be 10 bps less than the 3.1 percent the Street expects.

We’ve had three or four analysts tell us that Wells has an increasingly worrying reputation for anything from poor communication to outright misstatement. Whatever the reality, it is very hard not to wonder why any bank would risk reporting record profits in the present environment. If you had any confidence left in accounting as a discipline, perhaps now is the time to shed it.
Wells Fargo Q1 Profits Packed with Accounting Gain [Housing Wire]
Earlier: Fill Your Wells

Comments (10)

  1. 1
    Posted by guest | April 13, 2009 at 2:21 PM

    Short ‘em while you still can!

  2. 2
    Posted by guest | April 13, 2009 at 2:28 PM

    Morgan Stanley – for the love of god – has more Tier 3 assets to Tangible Common Equity than any other bank, and they did not aggressively write down debt so they won’t have the same WFC bump up.

  3. 3
    Posted by guest | April 13, 2009 at 2:34 PM

    WFC’s performance wasn’t totally real?
    Gosh, who could’ve seen that coming?

  4. 4
    Posted by Investorcluzo | April 13, 2009 at 2:47 PM

    EP/bess – let’s see the FPK report (please). KBW came out this a.m. with an “underperform” rating and a $12 price target. they weren’t fooled either. if wfc weren’t playing games, why not release full results early too? gs is out tomorrow with numbers and jpm is due up on thursday. why do these guys need to wait until after my put options expire?

  5. 5
    Posted by Anal_yst | April 13, 2009 at 3:17 PM

    @ Cluzo
    They’ve been reading DB, and take your calling their BS personally, of course.

  6. 6
    Posted by guest | April 13, 2009 at 3:30 PM

    …which is why I just loaded up on SKF

  7. 7
    Posted by guest | April 13, 2009 at 3:45 PM

    will the bank asterisk my money and say that 30% gain was from acctg gimmicks?

  8. 8
    Posted by guest | April 13, 2009 at 3:57 PM

    WFC will post profit in 2Q as well. It will taper off in 4Q09-1Q10
    Mark my words
    -Harald

  9. 9
    Posted by Investorcluzo | April 13, 2009 at 4:10 PM

    @6 – I just went long FAZ and FAS April 10 calls before the close. why stop at double leverage when you can get triple?
    @anal_yst – stumpf needs to stop reading db and start reading the economic indicators so he can get his damn internal models working properly.

  10. 10
    Posted by guest | April 13, 2009 at 9:33 PM

    Glad to see everyone here is still innumerate. 10 bps is not 1/3 of 3.1%.

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