Wells Fargo (WFC) Can Do No Wrong to Eyes of Market; JPMorgan (JPM) Reports As Well

Submitted By Trader Mark
I honestly think every major mutual fund in America is flocking to Wells Fargo (WFC) - every dip is bought and this is one of the very few stocks over both the 50 and 200 day moving averages. They should have quite a powerful franchise when all is said and done. JPMorgan (JPM) reported today as well so here are some highlights from both. Since I already have 3 banks, I decided not to pull the trigger on Wells Fargo on this latest pullback although it could, right now, be the most bulletproof stock in the country.

What I am interested in (for now) is their bad debt allowances and non performing loans. But the deposit growth at Wells is massive. On a somewhat related note, I saw a story that JPMorgan CEO Jamie Dimon has been approached to be the next Treasury Secretary if Obama wins...

Wells Fargo

Wells Fargo said Wednesday its third-quarter profit fell 25 percent as it took hits on investments in troubled finance companies and increased its credit reserves, but results were better than analysts had expected. For the July-to-September period, the San Francisco-based bank earned $1.64 billion, or 49 cents per share, compared with $2.17 billion, or 64 cents per share, in the prior-year quarter. Analysts had expected a profit of 41 cents per share on revenue of $10.96 billion, according to a poll by Thomson Reuters.
As previously announced, earnings were hurt by a 13 cents-per-share write-down on investments in Fannie Mae, Freddie Mac and Lehman Brothers. The bank also increased its credit reserves by $500 million, lowering earnings by 10 cents per share, in anticipation of higher losses in several of its consumer credit businesses. Overall, the bank took a $2.5 billion provision against potential bad loans.
The total allowance for credit losses now stands at $8 billion, Wells Fargo said
Net charge offs, or loans written off as unpaid, were $2 billion, or 1.96 percent of average loans annualized. Total nonperforming assets were $6.3 billion, or 1.53 percent of loans in the third quarter, up from $5.2 billion, or 1.31 percent, in the second quarter.
Net interest income, or income from loans and deposits, rose 21 percent to $1.1 billion.
During the quarter, the company saw a huge influx of deposits, especially at the end of September, Wells Fargo said. Core deposits increased $23.7 billion, or 30 percent, from June 30. (that's huge) Average loans increased $53.5 billion, or 15 percent, from a year ago, due mostly to growth in commercial loans.
Wells Fargo's tier-1 capital ratio -- a measure of a company's cash versus debt -- increased 34 basis points from the second quarter to 8.58 percent. Wells Fargo expects its capital ratio to benefit from the government's planned investment of $25 billion in preferred stock.
Wells Fargo has said it expects to take a $74 billion hit on Wachovia's $498 billion loan portfolio, but will likely minimize the blow by taking advantage of recently approved tax deductions. (wowsers - that's 15%)

JPMorgan

JPMorgan Chase & Co.'s profit tumbled 84 percent in the third quarter after it took big hits from souring mortgage investments, leveraged loans and home loans. Profit at the New York-based bank, considered one of the stronger players in the current financial meltdown, came in better than Wall Street anticipated. But the deterioration seen in all types of loans -- from home equity loans to prime mortgages to credit cards -- bodes badly for a banking industry that is requiring unprecedented investment from the federal government.
"If you're not fearful, you're crazy," Dimon said.
Still, revenue fell below expectations, dropping nearly 20 percent to $14.74 billion from $18.40 billion in the third quarter of 2007. Analysts predicted revenue of $16.01 billion.
It also boosted loan loss reserves by $1.3 billion to $15.3 billion, or $19 billion including Washington Mutual, to prepare for a worsening environment for lending.
Home equity loans continue to deteriorate-- charge-offs rose to $663 million from $511 million in the previous quarter and $150 million a year ago. They're expected to rise to as much as $800 million in the next several quarters, the bank said.
Subprime and prime mortgage trends are worsening, too. Subprime charge-offs rose to $273 million from $192 million in the second quarter and $40 million a year ago, while prime mortgage charge-offs rose to $177 million from $104 million in the second quarter and $9 million a year ago.
And more customers failed to make their credit card payments. The card charge-off rate edged up to 5 percent from 4.98 percent in the second quarter and from 3.64 percent a year ago. JPMorgan expects this rate to rise to 6 percent early next year, and to 7 percent late next year.

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