Thursday, financial services firm Wells Fargo & Co. (WFC) said it expects to report record earnings for the first quarter, sending the stock up over 27% in morning trade. The company expects to report net income of about $3 billion and per share earnings of about $0.55 after preferred dividends.
The earnings outlook includes $372 million in dividends paid to U.S. taxpayers on the U.S. Treasury's Capital Purchase Program investment.
On average, 17 analysts polled by Thomson Reuters expect first-quarter earnings of $0.23 per share, with the estimates ranging between $0.06 per share and $0.38 per share.
Total revenue for the quarter is estimated to be $20 billion, while the Wall Street looks for revenues of $18.98 billion.
Consolidated net interest margin is expected to be about 4.1% and efficiency ratio of about 56%. Combined net charge-offs for the first quarter is estimated to be $3.3 billion, compared to a combined $6.1 billion charge-off between Wells Fargo and Wachovia in the previous quarter.
Provision expense is estimated to be $4.6 billion and pre-tax pre-provision profit to be $9.2 billion. Allowance for credit losses is anticipated to be $23 billion.
Tangible Common Equity or TCE, a measure of financial strength, is expected to be above 3.1% of tangible assets at March 31.
The company had said in March that its Board of Directors would reduce quarterly common stock dividend from $0.34 to $0.05 per share, to enable the company to retain an additional $5 billion in common equity each year.
Wells Fargo said today that the 85% reduction in common stock dividend would benefit retained earnings by about $1.25 billion in additional common equity per quarter, amounting to about 10 basis points of TCE per quarter, beginning in the second quarter.
Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group, said Chief Executive Officer John Stumpf. Talking about the acquisition of Wachovia, he added, Wachovia's outstanding franchise has proven to be everything we thought it would be when we announced this acquisition, and the financial contribution from Wachovia exceeded our expectations in the first quarter.
Wells Fargo completed its acquisition of Wachovia January 1.
Like its peers, Wells Fargo also had its share of woes from the financial crisis. In October 2008, the company said it issued 25,000 of preferred stock to the U.S. Department of the Treasury for a total price of $25 billion, as a part of the government's cash infusion program. Wells Fargo was among the first nine large financial institutions to participate in the government's bailout plan. In January, the company said it does not plan to request additional capital under the Treasury Department's Troubled Asset Relief Program.
Last month, Moody's Investors Service slashed the debt rating of Wells Fargo and downgraded its preferred stock rating to junk category. The company's senior debt rating was lowered to A1 from Aa3 and the senior subordinated debt rating was slashed to A2 from A1.
Wells Fargo is expected to report its first-quarter financial results on April 22.
WFC is currently trading at $18.92, up $4.03 or 27.07%, on 36.15 million shares.
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