Friday, January 11, 2013 - 1:33 PM

Wells Fargo's Q4 Earnings Report - Insights For Depositors

Wells Fargo is the first major bank to report fourth-quarter earnings. One thing I find interesting that's not mentioned by the media is the reported change in deposits. According to Wells Fargo's press release:

Average core deposits of $928.8 billion for fourth quarter 2012 increased $63.9 billion, or 7 percent, from fourth quarter 2011.

If they can grow deposits with such low rates, they won't be under pressure to raise deposit rates any time soon.

The strong deposit growth was cited as one reason for their decline in net interest income. However, they still reported better-than-expected earnings. According to AP via Yahoo Finance:

Wells Fargo, the country's biggest mortgage lender, reported a 25 percent increase in fourth-quarter earnings Friday. The bank made more loans, set aside less money for potential defaults and enjoyed above-average returns from the investments made by its private equity business.

KenBDG5,144 posts since
Nov 29, 2009
Rep Points: 117,019

1. Friday, January 11, 2013 - 4:01 PM

It turns out that trading activities, the type associated with Wall Street firms like Goldman Sachs and Morgan Stanley, contribute significantly to each of Wells Fargo’s two categories of income. Almost $1.5 billion of its “interest income” comes from “trading assets”; another $9.1 billion results from “securities available for sale.” One billion dollars of the bank’s “noninterest income” are “net gains from trading activities.” Another $1.5 billion is income from “equity investments.” Up and down the ledger, abstruse, all-embracing categories appear: “other fees earned from related activities,” “other interest income,” and just plain “other.” The income statement’s “other” catchalls collectively amounted to $6.6 billion of Wells Fargo’s income in 2011. It will take the devoted reader 50 more pages to find out that the bank derives a big chunk of that “other” income from, yes, “trading activities.” The sheer volume of “trading” at Wells Fargo suggests that the bank is not what it seems.

From: What’s Inside America’s Banks?

What’s Inside America’s Banks? - Frank Partnoy and Jesse Eisinger - The Atlantic

Shorebreak1,287 posts since
Apr 6, 2010
Rep Points: 4,815

2. Friday, January 11, 2013 - 5:45 PM

It is impossible to decipher tthe financial statements of our megabanks. I really can't think of one good thing these megabanks are doing for consumers. Because they have a virtual monopoly of the banking business, they are able to suppress interest rates, provide lousy service to their customers and unnecessariily risk the stability of our financial system with their trading activities. They also make it very difficult for community banks to compete, considering the preferential treatment the megabanks receive from the govt. Despite what our politicians might tell us, it is obvious these banks are too big to fail and they are able to borrow money at very favorable rates because investors don't believe the govt will allow them to fail. The only viable way of correcting these problems is to break them up, so no single bank controls more than 5% of the deposits in the US.

lou351 posts since
Aug 3, 2010
Rep Points: 1,984