Other economic factors could undermine bank’s strong report
NEW YORK – Wells Fargo says it sees signs of recovery in its loan business.
But the big bank may be more of an exception than a leading indicator that the economy is improving.
Breaking from the cautious, even downbeat forecasts of rivals like JPMorgan Chase & Co., Wells Fargo on Wednesday used words like “favorable” and “confidence” about its future amid tentative signs that its loan defaults are close to a peak or already have peaked. The company believes the recession-weary consumer could be making a comeback.
The company is way ahead of other banks, although the CEO of Bank of America, which lost more than $5 billion last quarter, expressed mild optimism that sagging consumer sentiment may be turning around.
Many banking analysts aren’t so sure. The reason: Ongoing problems including the deteriorating commercial real estate market and rising credit card defaults could still trip up a recovery. And while Wells’ profit report was good news, the bank is ahead of its competitors by having already taken losses on many of its bad loans.
So while Mike Loughlin, Wells Fargo & Co.’s chief credit and risk officer, said a better economic outlook and an improved credit forecast “increase our confidence that our credit cycle is turning,” that assessment might be a little premature – if not for Wells Fargo, then for the banking industry as a whole.
Bert Ely, a banking analyst in Alexandria, Va., called Wells’ performance a “good surprise” but said several potential pitfalls could upend the bank’s bold statements about a potential recovery. Specifically, yet-to-be-realized losses on commercial real estate, prime mortgages and credit cards could weigh on all bank earnings well into 2010.
Wells Fargo said it earned $394 million, or 8 cents per share, during the fourth quarter. That surprised analysts polled by Thomson Reuters, who were expecting a loss of 1 cent per share.
Adam Barkstrom, a managing director at Sterne Agee, shared the skepticism over Wells’ forecast of an economic recovery, saying: “I think it’s still too early to make that prediction.”
sponsored You’ve probably heard of co-ops: food co-ops, childcare co-ops, housing co-ops, energy co-ops.