Big Banks

Wells Fargo

Wells Fargo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WFC)") else Response.Write("(NYSE: WFC)") end if %> has been in the limelight recently as the subject of speculation over Warren Buffett and affiliates selling their stakes in the company. The West Coast bank says Buffett is still a large investor -- all of which is relatively irrelevant to the investment merits of the company. Of greater concern to investors has been a stumble in earnings growth with the company's acquisition of First Interstate. There have been reports that First Interstate customers have been displeased with the company's efforts in integrating the two banks. Customer complaints of high fees (which are not complaints exclusive to First Interstate's customers) may be evidenced by Wells Fargo's extraordinary profitability.

Of the traditional banking members of the focus group, Wells Fargo achieves by far the highest return on tangible book value. While the P/E ratio of the company is legendarily high right now, Snapshot readers should look past that metric to the company's price to amortization-adjusted earnings to get a true sense of the valuation here. While Wells Fargo will probably concentrate on getting things squared away with First Interstate, which many believe is a good bet with the highly talented management at the company, the next move may be something similar to BankAmerica's acquisition of Robertson Stephens.

The Financials

Wells Fargo reported a 31% reduction in net income per share in its most recent quarter and a 27% decline in EPS for the latest six months. Provisions for loan losses this year reduced net income as compared with last year when the company was over-reserved for loan losses and did not record provisions for bad loans. Revenues grew smartly in the first six months of 1997, up 24%, but dropped 5.8% year-over-year in the second quarter.

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