Najarian said Wells Fargo saw a deterioration in credit quality with credit losses rising to 211 from 154 basis points in the first quarter, a 50 percent increase in the non-performing assets — and not a very large build in the loan-loss reserve for future quarters, compared to other banks such as JPMorgan Chase and Bank of America .
“[Wells Fargo’s] stock has run up quite substantially over the last several months... However, we think the third and fourth quarters will be more challenging for this company and will put some pressures on this stock,” he said.
“That’s probably likely to compress the stock a little further. Once it gets to a cheaper valuation, it’s probably more attractive. But we would be on the sidelines at this point.”
The Long-Term Picture
Although many analysts expressed worry Wells Fargo will need to raise more capital to cover losses from real estate loans, including the option adjustable-rate mortgages it inherited when it bought Wachovia, Najarian said the acquisition will work out fine in the long run for the bank.
"It’s going to create a lot of positive earnings leverage for the company in the long-run," he said.
What About Morgan?
In the meantime, Morgan Stanley reported a second-quarter loss of $159 millionthat was significantly worse than analyst expectations. Watch the videofor more on what George Ball, chairman of Sanders Morris Harris Group, had to say about the numbers.
Najarian owns shares of Wells Fargo.