High expectations will do you in every time. We saw that once again in the wake of the Wells Fargo earnings report.
Investors have an extremely high view of megabank Wells Fargo (NYSE:WFC). To a large extent, that's well deserved as the bank held up much better than its big-bank competitors through the financial crisis. In the sluggish, post-crisis world of lawsuits, regulatory crackdown, and lackluster economic growth, Wells Fargo has likewise found itself as an industry leader.
But as investors saw today, the high opinion of the bank can cut both ways. In what was by most standards a really quality quarter for the bank, investors found reason to be disappointed and have sold the stock in the wake of the release.
An earnings-per-share miss -- which is often at the heart of earnings season stock drops -- wasn't the culprit here. Wells managed $0.91 in fourth-quarter EPS versus the consensus estimate of $0.89. Total net income was $5.1 billion, up 24% from last year.
One area that investors could find to take issue with was Wells' reported net interest margin -- the spread between what the bank earns from lending and what it pays for deposits and other borrowed funds. That spread was 3.56%, down from 3.66% last quarter and 3.89% in the fourth quarter of last year.
Is that concerning? Sure. But it's notable that noninterest income -- the piece of the business that relies on fees rather than interest spreads -- is doing quite well. At $11.3 billion in noninterest income, that portion of Wells' income stream was up 7% from last quarter and 16% from the same quarter last year.
The bottom line, though, is that shareholders have set a very high bar for Wells Fargo. The bank's quarterly report jumped pretty darn high, but just not quite high enough.