Wells Fargo earnings: $1.16 a share, vs $1.07 EPS estimate

Key Points
  • EPS: adjusted $1.16 vs. $1.07 expected according to Thomson Reuters
  • Revenue: $22.05 billion vs. $22.38 billion expected according to Thomson Reuters
Wells Fargo posts mixed fourth quarter results, effective 2018 tax rate 19 percent

Wells Fargo reported fourth-quarter earnings that beat analyst estimates but fell just short on revenue. Profit received a boost from the tax bill, putting the bank in a unique position among its Wall Street peers.

The third-largest bank by assets said it earned $1.16 a share, or $6.2 billion, on revenue of $22.05 billion. The bank was expected to report fourth-quarter earnings of $1.07 per share on revenue of $22.38 billion, according to analysts surveyed by Thomson Reuters.

"While we faced challenges in 2017, we are a much better company today than we were a year ago, and I am confident that this year Wells Fargo will be even better," CEO Tim Sloan said in a statement.

The profit represents a 17 percent increase from the same period in 2016.

Shares, however, were down nearly 1 percent in electronic trading shortly after the earnings release, off the morning lows.

"There is nothing in this report that suggests the stock should be bought," said Vertical Group analyst Dick Bove. "However this report reflects history not the numerous positive changes expected in 2018 in investment banking, mortgages, credit cards, loan growth overall, expense savings. Therefore, I would ignore the report."

Bove said the report was particular weakness in

Here's how the company did on an adjusted basis:

  • EPS: adjusted $1.16 vs. $1.07 expected, according to Thomson Reuters
  • Revenue: $22.05 billion vs. $22.38 billion expected, according to Thomson Reuters

A key question for bank earnings is the impact of the recently passed tax reductions, through the Tax Cuts & Jobs Act, on operations.

Wells Fargo reported a $3.35 billion after-tax benefit, or 67 cents per share, thanks to the tax bill, with a $3.89 billion estimated tax benefit from the reduction to net deferred income taxes. The company also reported a tax gain from the sale of Wells Fargo Insurance Services. Most other banks are expected to take a loss from the tax act.

Net interest income was $12.3 billion, below Wall Street estimates, which the company attributed to a $183 million negative adjustment related to leveraged leases under the tax act. The net interest margin of 2.84 percent also was slightly below the expected 2.87 percent, according to FactSet.

Return on equity was 11.35 percent, ahead of the 10 percent cost of capital.

Wells Fargo continues to try to repair the reputational damage it suffered due to the fake-account scandal in which employees trying to hit sales goals enrolled customers in programs without their knowledge. Shares are up about 15 percent over the past 12 months, below the 20.3 percent the KBS Nasdaq Bank Index has returned and the S&P 500's 21.6 percent.

"In 2017 we continued executing on our plan to build a better bank for the future, and I'm proud of the hard work and dedication of our team members to put our customers first as we transform Wells Fargo," Sloan said.

The company has been looking to cut costs as part of its rehabilitation effort, and said it is looking for expneses of $53.5 billion to $54.5 billion in the year ahead. Non-interest expenses jumped to $58.48 billion for the full year in 2017, against estimates of $54.62 billion.