Fitch: Wells Fargo & Co 4Q'12 Results: Bottom Line Performance in Line with Expectations

  Fitch: Wells Fargo & Co 4Q'12 Results: Bottom Line Performance in Line with
  Expectations

Business Wire

NEW YORK -- January 11, 2013

Wells Fargo & Company (WFC) once again reported a record quarter with net
income of $5.1 billion for the fourth quarter 2012 (4Q'12) for a strong ROA of
1.46%, according to Fitch Ratings.

Results included three one-time items during the quarter. First, WFC reported
$644 million in pre-tax charges stemming from the settlement agreement with
regulators, which immediately ends the independent foreclosure review programs
required as part of the April 2011 consent orders. WFC, in addition to nine
other mortgage servicers, participated in the settlement, which brings to an
end individual loan file reviews. Also impacting results, WFC contributed $250
million to the Wells Fargo Foundation during the quarter. Lastly, WFC realized
a $332 million tax benefit associated with a previously written-down Wachovia
life insurance investment.

Strong deposit inflows continue to pressure the net interest margin (NIM),
which was down 10bps during the quarter, following a much steeper decline of
25bps in 3Q'12. The company took in a significant $51 billion in deposits in
4Q'12 and over $20 billion of deposits in the third quarter. During these
quarters, period-end loans were up just $17 million and $7 million,
respectively. Without attractive higher-yielding investment opportunities,
this excess liquidity compressed the margin (8bps of the 10bps compression in
4Q'12 alone). Positively, WFC continues to report further declines in deposit
costs to just 16bps in 4Q'12.

Similar to last quarter, WFC again retained approximately $10 billion of 1 - 4
family conforming mortgage production, somewhat dampening the contribution
from mortgage banking by forgoing around $340 million in additional mortgage
revenues. Absent the retention of these mortgages in both quarters, core loan
growth was stronger during the quarter, up 3% on a sequential basis versus
essentially no growth last quarter, and helped to keep spread income flat on a
sequential basis.

Noninterest income was positively impacted by strong gains from equity
investments, including the gain on the sale of Becker Underwood. These gains
helped to offset weaker trading and losses on debt securities. Revenues were
also aided by solid growth in investment banking and retail brokerage
asset-based fees and mortgage banking. Mortgage originations, applications,
and the pipeline all declined during the quarter, but remain strong. Fitch
nonetheless expects mortgage activity to slow, and the contribution of
mortgage banking to WFC's earnings to lessen over time.

Excluding the foreclosure review settlement charge and charitable
contribution, core expenses were approximately $12 billion, slightly down from
last quarter.

Positively, there were no surprises in mortgage repurchase expenses, with the
pipeline and mortgage repurchase provision expenses lower for the quarter.
Reserve coverage of unresolved claims improved to approximately 113% at
YE2012. Fitch continues to expect that provisions for mortgage loan repurchase
losses will remain a modest drag on earnings performance over coming periods.

Asset quality improvement slowed during the quarter. Excluding the noise
related to the OCC guidance that went into effect last quarter, core net
charge-offs were $1.8 billion during the quarter, roughly flat from last
quarter. Provision expenses were up on a linked-quarter basis, the first time
in three quarters. Excluding the NCOs related to the OCC guidance, there was
no release reserve in 4Q'12, per Fitch's calculations, as provision expense of
$1.8 billion exceeded adjusted NCOs. Nonetheless, this is in line with Fitch's
expectations for dwindling reserve releases for the industry.

Capital ratios continue to be augmented through earnings generation. WFC's
estimated Tier 1 common ratio under Basel III improved to 8.2% up from 8.0% at
3Q'12.

Additional information is available at www.fitchratings.com.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Julie Solar, +1-312-368-5472
Senior Director
Fitch, Inc.
70 West Madison Street
Chicago, IL 60602
or
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
 
Press spacebar to pause and continue. Press esc to stop.