Fitch: Wells Fargo 3Q'14 Results Remain Solid

CHICAGO--()--Wells Fargo & Company (WFC) reported $5.7 billion in net income for a return on assets (ROA) of 1.4%, essentially unchanged from the prior quarter, according to Fitch Ratings. Earnings were supported by higher spread income and lower taxes, partially offset by increased loan loss provisioning. Fitch views these results as consistent with WFC's credit profile, with ratings that remain among the highest in the world.

Higher spread income was supported by earning asset growth, purchase accounting accretion and one more day in the quarter. The net interest margin (NIM) continued to contract a further 9 basis points (bps) in the third quarter of 2014 (3Q'14), reflecting deposit inflows and liquidity-related funding actions. WFC issued $16.3 billion in liquidity-related long-term debt issuances in 3Q'14, as well as some additional liquidity-related short-term funding. With regard to LCR compliance, the company disclosed that it is now solidly over 100%.

Overall noninterest income was flat on a linked-quarter basis. Lower mortgage banking revenues were offset by increases in net gains on debt securities and over $700 million in net gains from equity investments, primarily from Norwest Venture Partners. These revenues combined with investment banking and trading revenues comprised a relatively manageable 7% of total revenues in 3Q'14. The contribution from these businesses is well below some of WFC's larger bank peers, but these items can still be a volatile line item for WFC. The contribution has ranged from 3.5% of total revenues in 2Q'12, to over 8% in 1Q'14.

Expenses were up slightly on a sequential basis reflecting higher operating losses related to litigation accruals and an increase in outside professional services, partially offset by lower personnel expenses. WFC's lower tax expense was attributed to charitable donations of appreciated securities.

WFC reported a smaller reserve release on a sequential basis of $300 million as compared to $500 million last quarter. Net charge-offs (NCOs) reflected continuing asset quality improvement and declined 7% to just 32bps, while provision expenses increased 70%. WFC expects future reserve releases, absent a significant deterioration in economic conditions.

Estimated Common Equity Tier 1 under Basel III Advanced Approach increased 32bps to a solid 10.46% at quarter-end.

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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

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

Contacts

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