Circling the wagons at Wells Fargo
Are the wheels coming off the Wells Fargo stagecoach?
Shares of Warren Buffett’s favorite bank fell 4% Wednesday to its lowest level since December after Wells (WFC) posted a mediocre first quarter and dodged persistent questions about the eyebrow-raising departure of its longtime financial chief.
Wednesday’s quarterly report is Wells’ first since Howard Atkins announced his retirement Feb. 8. Wells’ failure to fully explain his reasons for leaving continues to chafe investors.
CEO John Stumpf (right) and the new CFO, Tim Sloan, were asked on a conference call Wednesday morning if they could add any detail to the bank’s terse announcement of Atkins’ departure, which described the move only as personal and not related to the bank’s accounts. It’s not an unreasonable question given that Atkins has become the main point of debate regarding Wells.
But no, Stumpf will not be going there. Bizarrely, he claimed that the news of Atkins’ departure is “so yesterday” and that “I couldn’t be happier” with how things are going at the bank.
But the camp that’s happy about how things are going at Wells is pretty sparsely populated right now. The bank’s profits beat Wall Street expectations, but its lending margins narrowed and its mortgage business slowed sharply. Citi analyst Keith Horowitz said earnings estimates on Wells “need to come down,” as its core profits came in 11% below targets at the lowest level since the bank bought Wachovia in 2009.
Wells responded by slashing 4,500 jobs in the mortgage sector, but analysts remain concerned about the bank’s expense profile and growth prospects.
One analyst noted that a slide in the fourth-quarter earnings presentation extolling the bank’s strong expense control was missing in the first quarter presentation. Execs responded that a soft economy means quarterly results will be “lumpy” but insisted they remain focused on cutting costs.
The latest Wells selloff could add to pressure on Buffett’s Berkshire Hathaway (BRKA) to take a writedown on a $400 million slug of Wells shares it holds. The Securities and Exchange Commission asked Berkshire last year why it hadn’t taken a writeoff on the shares, which Berkshire bought at prices well above the current market price.
The firm responded most of its $3.2 billion Wells stake is in the black, and that the size of its loss on the underwater position narrowed over the course of 2010 — raising hopes that the stock will eventually rise above the purchase price. But Wells shares are now down 7% for the year, which could yet bring the SEC knocking on Berkshire’s door again.
Not that Stumpf would mind. He said the bank’s integration of the Wachovia merger is “on schedule, on budget,” and producing revenue gains for Wells Fargo.
“The proof of the pudding is in the eating,” Stumpf said. But it is becoming clear this dessert is not to everyone’s taste.
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