Not that most financial stocks haven't suffered, but Wells Fargo seemed to be keeping its own. Fueled by the presumption of better underwriting standards during the credit crisis, a strong dividend tradition and its association with Warren Buffett, the firm seemed at least somewhat resilient to attack. No more, apparently.
Wells Fargo & Co., the biggest U.S. bank by stock-market value, may need to raise $10 billion and cut its dividend after the acquisition of Wachovia Corp., wrote Atlantic Equities LLP analyst Richard Staite.
Staite, based in London, downgraded Wells Fargo to "underweight" from "neutral" today and said the bank may announce disappointing earnings this year because of the deteriorating economy. Wells Fargo reports fourth-quarter earnings on Jan. 28.
"With the accelerating decline in house prices in California and surge in unemployment we expect them to suffer significant losses in 2009," Staite wrote. "Given the weak economic outlook there is a chance the dividend could be cut as a way to conserve capital."
As we print this Wells Fargo is down 14%. Alarming since it was down 9% when we started writing this article.
We aren't usually ones to say "We told you so," but we don't mind pointing out that a friend of Dealbreaker had Wells pegged 6 months ago.
No matter what, even if WFC has managed to walk through this period relatively unscathed, I do not think this helps the case for the financials as a whole and would absolutely be a seller (if only I could!) of any rally. I'm going on record: this is a bear trap.