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Dry Wells?

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]
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