North Carolina-based banking giant Wachovia (NYSE: WB) will report Q1 2007 financial results on Monday, April 16. Here's what to expect.
Word on the street:
- Twenty analysts expect earnings to grow to $1.16 per share, up 3.6% from last year's first quarter. The highest estimate is $1.23, and the lowest projection is $1.12.
- The Motley Fool CAPS community has awarded Wachovia a three-star rating.
By the numbers:
The net interest margin -- a key banking metric -- has trended down over the past three years, as it has for most banks, because of the shrinking spread between the rates banks pay for deposits and the percentages they earn on loans. The spread had recently gone negative -- also known as the dreaded inverted yield curve. Analysts expect Wachovia's net interest margin to trend slightly below where it ended 2006: right around 3.06%
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WB
|
Dec. '03
|
Dec. '04
|
Dec. '05
|
Dec. '06
|
|
Net Interest Margin
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3.72
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3.41
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3.24
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3.12
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Return on Equity
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13.17
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13.08
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13.55
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13.21
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TTM ratios (%) provided by CapitalIQ.
One Fool says:
Wachovia and archrival Bank of America (NYSE: BAC) maintain corporate headquarters just down the street from each other in Charlotte, N.C., and both have relied heavily on acquisitions to keep growth chugging along. Wachovia is in the process of digesting Golden West, and analysts expect cost-cutting opportunities throughout 2007.
However, growth by acquisition is more risky, and it can run out of steam when a company becomes too big. Citigroup's (NYSE: C) past buying binges may have burdened the company with an unwieldy corporate structure; it's now furiously shedding certain assets and employees. Neither Wachovia nor mighty B of A have faced the same acquisition challenges, but like Citigroup, they will eventually have to prove themselves equally capable of growing organically -- by internal means, rather than outside acquisitions.
Wall Street is still trying to determine whether subprime and related mortgage woes will hurt the larger financial institutions. Wachovia does have significant mortgage operations, which grew from the purchase of Golden West, exposing the company to precarious California and Western markets.
Fortunately, larger banks such as Wachovia, US Bancorp (NYSE: USB), and JPMorgan Chase (NYSE: JPM) should have the financial clout and diversified business mix to ride out any housing-related woes. Wachovia is primarily a general banking-service provider, but it's also the fifth-largest bank in the land. It's exposed to capital and wealth management businesses such as brokerage, private banking, and trust portfolio management. This diversification could serve it well under nearly any economic environment.
Further fiscal Foolishness:
Wait! There's more. Be sure to read pre-earnings news and analysis for other Big Banks.
Bank of America, US Bancorp, and JPMorgan Chase are
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy.
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