16 July, 2008

Roller Coaster Market continues with Wells Fargo led Bullish Wednesday

The see-saw affair that is today's markets went there and back again earlier this week and Wednesday, based on some encouraging news from Wells Fargo (WFC), saw the scales tip towards the Bulls.

Wells Fargo, the financial holding and banking company, saw its earnings drop 20% year over year, but in fact raised its divided and shouted from the rooftops that business ain't all that bad. The stock's reaction? a 30% gain! Piggybacking off this new found Financial Sector optimism were the usual banking and brokerage suspects. Coupled with a drop in Oil prices, the banks were the leading story in the Dow's 270 point resurgence Wednesday.

Despite the 21% fall in profits, WFC showed much optimism for continued operational flexibility and earnings-power. The company reiterated it's keen eye for 'strategic acquisitions' in a broad plan to expand into an Eastern customer base, and with mortgage houses and local banks falling by the wayside left and right, the marketplace is ripe for consolidation.

This was the biggest collective buying push for the company's shares today. Not to be outdone however was the dividend bump. As yields continued to climb for the Financial sector, many on the Street anticipate further substantial dividend cuts from the major banks, so a 10% bump in Wells Fargo's payout was welcomed by Investors.

Numbers were refreshing across the board, $1.8Billion in profit ($0.53/share) on $11.5Billion in revenue, representing a 16% year over year rise for the top line. It was also confirmed by management that product performance is increasing throughout the company and its clients. In effect, the company is selling more products to each customer, on average.

The fact that WFC set aside $3Billion to cover potential future losses, was largely glossed over in reporting on the quarter, and a number of that size has to be taken into consideration. Loan losses are still very real in today's banking climate, however IF WFC is one of the many first steps to stabilization in an un-easy US economy, the loss provision will seem largely insignificant in the quarters that lie ahead. In today's environment that is still and IF, that for many traders is filled with uncertainty.

Disclosure: Author holds no position in WFC

1 comment:

Anonymous said...

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