Wells Fargo's Earnings: 3 Things to Worry About

Wells Fargo had a strong quarter, beating analyst estimates and showing good growth. But analysts Anand Chokkavelu and Matt Koppenheffer talk about the parts that may cause worry.

1. Net interest margin fell to 3.66% from 3.91% last quarter. Prepayments on its mortgage-backed securities and lower long-term rates on new issuances hurt. Not being able to deploy new deposits also hurt. JPMorgan Chase and US Bancorp also grew deposits faster than loans. We'll see what fellow high-quality bank BB&T reports on Thursday.
 
2. As a response, Wells retained more of the loans it originated. The risk there is if interest rates go up.
 
3. In addition, Wells allocated close to $1 billion in share repurchases (some in Q3 and some for Q4). While Anand believes Wells is undervalued and that this will end up being a good use of capital, share repurchases have traditionally been dicey propositions for companies.
 
See more in the following video.

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Anand Chokkavelu owns shares and warrants in Wells Fargo and JPMorgan Chase. Fool contributor Matt Koppenheffer has no positions in the stocks mentioned above. The Motley Fool owns shares of JPMorgan Chase and Wells Fargo. Motley Fool newsletter services recommend Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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