Less (for deposits) is more (for earnings) at Wells Fargo

Wells Fargo & Co. depositors generally earn a lot less on their money than they could get elsewhere.

The bank’s shareholders should be very grateful: Those cheap deposits are buffering the company’s bottom line against loan losses.

San Francisco-based Wells on Wednesday reported better-than-expected second-quarter earnings and a 10% boost in the dividend on its stock.

The news -- which reinforced the view that Wells is certain to be a survivor of the current banking industry mess -- sent the company’s shares rocketing $6.72, or 33%, to $27.23. It was a bad day for short sellers who’ve been betting against the stock. They picked the wrong horse to lose.

Wells’ net income in the quarter ended June 30 fell 23% from a year earlier, to $1.75 billion, or 53 cents a share. But that beat analysts’ average estimate of 50 cents a share.

And the company portrayed itself as benefiting from its rivals’ woes. "We are open for business and getting lots of it," CEO John Stumpf said in the earnings report.

Wells is facing higher loan losses, like nearly all banks. The company last quarter recorded a $3 billion provision for credit losses, which is what pulled earnings down. Non-performing assets totaled $5.23 billion at June 30, or 1.3% of all loans, up 16% from the level just three months earlier.

Within its substantial real-estate-loan portfolio, the bank warned that the quality of its $84-billion in home-equity loans "continued to deteriorate as property values search for a bottom." And Wells has unrealized losses of $2.1 billion on its portfolio of mortgage-backed securities, up from $598 million three months ago. Those could turn into real losses if the market doesn’t improve and Wells decides to sell out.

Still, the bank has a big advantage with its core deposit base of $318 billion: The cost of holding on to that money remains relatively low, which helps to give Wells a wider profit margin on its loans than many of its rivals earn.

Wells says it benefited last quarter from its "disciplined deposit pricing." Translation: It isn’t paying much for that cash. In California, the bank’s current yield on a one-year, $25,000 certificate of deposit is just 1.6%, compared with a national average of 2.48%, according to rate-tracker Informa Research Services.

If Wells’ depositors began to look elsewhere in large numbers, that would be a problem. But given the TV images of long lines of depositors outside the branches of failed IndyMac Bank -- which was notorious for paying high yields -- it could be that many Wells customers will be content to stay just where they are.

And they might soon have more company: "The hysteria being spread concerning bank safety is likely to result in deposits from smaller banks moving to Wells," said Richard Bove, an analyst at Ladenburg Thalmann.

Photo: Paul Sakuma/Associated Press

Comments

[bottom line]

I keep just enough in my Wells checking to pay monthly bills online, with a $1,200 cushion. It saves me the cost of stamps to run two households, I might actually write 12 paper checks a year.
The branch is a two minute walk from my primary residence, & this is it's third business incarnation since I bought, in Thanksgiving, 1986. In other words, Wells sort of inherited me when Norwest, I believe, took them over & kept the Wells Fargo marque.
Heck, even a Schwab money market checking will pay 2% monthly.

[Robert NO longer in LA]

Could be Wells Fargo has leadership and management, plus it's focused on LONG term shareholder benefits...unlike most of the CRIMINAL ENTERPRISES, masquerading as financial institutions. Of course, these criminal enterprises would not be so bold, had they not purchased Senators and Representatives in the US Congress, and YOUR state capitol. Now, please explain WHY, you keep the same crooks in Office?

[Peter]

I love my Wells Fargo! I remember about 2 years ago, I inquired about a new home loan and the mortgage broker at Wells explained that they don't do neg ams and crazy arm loans. Im sure glad I wasn't somewhere else getting swindled into a future foreclosure.
Thanks guys for doing a great job and helping me to keep a level head. Thanks to you I still have my great credit rating, a warm bed and food in the fridge.

[martscan]

Of all the many banks I have dealt with in 54 years, WF has been the worst of the lot for service, incompetent employees, fees, sub par savings rates, snafus and lack of common congeniality. Ironically, they purchased one of the best banks, and my account, with whom I have ever done business, 1st Natl. of Farmington, NM. As a prior poster mentioned, as their branch is only blocks from my home in Arcadia and the account is but for a single property, I maintained the account with them. The snafus are too numerous to mention, save one.

A Thai friend of mine, newly arrived in the US, unfamiliar with our banks and living in a remote, rural area, sent me $1,500 in Thai bahts to exchange for her. I checked the exchange rate, 40bht to $1.00 at the time, and at the teller's window, realizing the pimply faced, 70 pound anorexic, 14 year old appearing young girl probably would not be too hip on the procedure (the day before she didn't know what a bank wire was) asked for an officer or the cashier. Naturally, the 14 yo insisted on knowing the nature of my business and why I wanted to see an officer, so I dutifully explained to her that I wanted to buy the bank, and did she know the selling price? When the honcho arrived, a 55ish woman, 5'1" and the antithesis of the emaciated child, I told her my story. She left for 10 minutes, finally returned with an elongated WF brown envelope with a string tie, counted the bahts, twice, penciled some figures and then peeled off $350US. I, conversationally, explained that I checked the rate not an hour before and $350 could not be the correct dollar amount. This went back and forth until security was asking me to dance and I felt the need for a blood pressure pill and security suggested the local, real police would ask for my hand, not for a dance but for handcuffs. I grabbed the $350 and my pride felleth.

Home, expanding my constricted arteries with cold Blatzes, I called WF's downtown exchange dept and confirmed the rate. As it was late afternoon, I hoped the Arcadia branch hadn't yet sent the forex downtown and I was first in line awaiting the bank's opening the next morning. Same rotund, 55ish woman and I pleasantly asked to buy back the bahts I had exchanged the day before. Luckily, she retrieved the elongated envelope and routinely counted the bahts to make the reverse exchange. Voila! This time she penciled figures that added up to $1,500. She began profusely apologizing for "miscalculating" and, gallant that I am, told her it was OK, I used to have car payments overdue myself.

The moral of this true story is that just because a bank is huge, powerful, global and profitable, doesn't mean they aren't cheap (they don't train or pay well), insensitive to individual needs...who needs you...and lousy to do business with.

[brkdckdwg]

THE ECONOMIC CRISIS THAT HAS BEFALLEN THE U.S REALLY ADDS MERIT TO THOSE OLE SAYING "THAT A FOOL AND HIS MONEY ARE SOON PARTED AND THAT THERE'S A SUCKER BORN EVERY MINUTE AND MY ALL TIME FAVORITE "YOU CAN FOOL SOME OF THE PEOPLE MOST OF THE TIME AND FOOL MOST OF THE PEOPLE SOME OF THE TIME BUT DIVIDE THE PEOPLE BY RACE,RELIGION,POLITICAL AFFILIATION,AND GENDER WILL MAKE THE FLEECING POSSIBILITES ENDLESS AND NO ONE KNOWS THIS BETTER THAN THOSE IN BUSINESS AND THEIR LAP DOG LACKIES IN THE PUBLIC AND MEDIA SECTORS WHOSE JOB IS TO SALE US{THE SUCKER} ON HOW GREAT DEREGULATION FREE TRADE AND TRICKLE DOWN IS FOR THE ECONOMY { WHICH IS SHORT FOR FREE TO TRICK AND CON OUR DUMB @#@$$} THE DEMILAPDOGS JOB ENTAILS SNIFFING EACH OTHERS BUTT AND THEN SNARLING AND HOWLING AT MOON ON THE WHAT ,WHEN AND HOW OFA CURRENT EVENT WHILE SECRETILY BEING HAND FED TABLE SCRAPS BY THEIR MASTER'S KEEPERS OF THE HOUNDS {LOBBYIST} WHILE THE REPUBLAPDOGS JOB IS TO LICK THEIR OWN BUTTS AND THEN SNARL AND HOWL AT THE MOON ABOUT WHINNERS WITCH HUNTS,PATRIOTISM AND OR THE LACK THEREOF WHILE THEY AND THEIR LOVEONES FED OPENILY FROM THE HAND OF THEIR MASTER'S KEEPERS OF THE HOUND.WHICH BRINGS ME TO THE WORST ,MOST USELESS AND MOST DAMNABLE OF THEM ALL ...THE FLEAS,TICKS AND LICE WE CALL ...THE MEDIA WHOSE INSIDEOUS JOB IS TO KEEP THE MASSES DISTRACTED AND CONFUSED CHASING THEIR OWN TAILS WITH MISINFORMATION AND DIVISIVE SARCASM,AND RHETORIC AND IN RETURN ARE ALLOWED TO FEED AND GROW PLUMP USING THE PUBLIC DOMAIN TO SELL AIR TIME AND THEIR SO CALLED LIFE STORIES [now in paperback @www.divide n conquer the fools, or @ laughing all the way to the bank.com.