Don’t Believe the Hype, Wells Fargo $3 billion in profits???
Borrowing from the immortal band, Public Enemy, “Don’t Believe the Hype”.
I don’t believe the expected profits from Wells Fargo…sorry, but I don’t.
The problem I have is that mark-to-market accounting has been suspended, and, I presume that companies can be a little more lax in writing down assets that are worthless or otherwise unsaleable, and still be considered compliant with GAAP accounting. Thus it’s hard to gauge the exact amount of write-downs that should’ve been taken on their balance sheet, and thus the exact amount of income and equity.
Nonetheless, Wells wrote down about $37 billion from the Wachovia acquisition and took a lot of hits in the 4th quarter in 2008.
| Charge offs | Q1 2009 | Q4 2008 |
| Legacy Wells Fargo | 2.8B | |
| Legacy Wachovia | _ | 3.3B |
| Combined | 3.3B | 6.1B |
So they may have been trying to push as much crap in 2008. No problem. If I were them, I would’ve made 2008 a washout year and looked to 2009 as the fresh start, too.
But my doubt on earnings is based on the high level of unemployment (despite lower than expected new jobless claims), which will drive future write-downs, and loosened yet still relatively tight credit markets, which should limit revenue growth.
Earnings will probably be as strong as the press release states…Wells Fargo wouldn’t have issued the press release if it wasn’t going to happen. I’m more focused on the quality of current earnings (limited write-downs mentioned above) and future earnings.
Sure, I could be wrong…been wrong before. Been right a lot of times too.
