Speculators that bet on Wells Fargo (WFC) reporting strong quarterly results lost money last week. Shares fell 9.64% after the report. What happened?
Wells Fargo posted GAAP earnings per share of 42 cents. Revenue fell 14.3% from last year to $18.86 billion. Provisions for credit losses, at $769 million, is below the $1.76 billion consensus estimate.
Average deposits rose while average loans fell. The $2.3-billion declines in net interest income is a concern. The Fed’s rate cut is damaging the bank’s haven of income. It is forcing the bank to take risks, so markets are selling the stock to account for that in the quarters ahead.
After the elections, Wells Fargo will likely cut thousands of jobs. The CEO does not want to get in the news at this time and become a target of either party. In the current quarter, expect WFC to improve its operating efficiency as it moves out of California to lower costs.
Setting a $10-billion cost reduction will offset the NII decline and the Fed-imposed restrictions hurting the business. Looking ahead, if the Fed takes its watchful eye off of Wells Fargo and the financial sector after the elections, then the stock valuations may rebound.
Wait for the selling volumes in WFC stock to end, then re-evaluate the entry price.