Will Mortgage Banking Support Wells Fargo (WFC) Q4 Earnings?

Wells Fargo WFC is scheduled to report fourth-quarter 2020 results, before the opening bell, on Jan 15.

Amid the coronavirus-induced global economic slowdown and reduced business activities, overall growth in loans was somewhat soft in the fourth quarter. Per the Fed’s latest data, weakness in consumer and commercial and industrial loans might have offset pickup in commercial real estate loans.

The central bank slashed interest rates to near zero this March in order to shield the U.S. economy from the coronavirus mayhem. This is likely to have hurt Wells Fargo’s net interest margin and income. Additionally, the impact of the Paycheck Protection Program might have dragged down margins during the period under consideration. However, low deposit costs are likely to have been an offsetting factor. The Zacks Consensus Estimate of $9.4 billion for NII suggests a 16.8% decline from the prior-year quarter.

Now, let’s take a look at the other factors that are likely to have influenced Wells Fargo’s fourth-quarter performance:

Mortgage Banking: Mortgage activity remained strong during the quarter, supported by significantly high refinance activity and robust purchase activity, induced by historically low rates. Origination volumes were also high, while gain on sale margins is likely to have increased as well. These factors are anticipated to have supported Wells Fargo’s mortgage banking fees in the to-be-reported quarter.

Notably, the Zacks Consensus Estimate for Wells Fargo’s mortgage banking revenues is pegged at $1.3 billion for the December quarter, which suggests 68% growth from the year-ago reported number.

Overall Non-Interest Revenues Growth: The fourth quarter witnessed continued strength in equity markets, boosting market-driven revenues. Wealth, trust, trading and asset management revenues are expected to have recorded high numbers. Moreover, as the lockdown measured were relaxed during the quarter under review, card fees are anticipated to have supported consumer spending.

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High Expenses: Wells Fargo’s costs might have flared up during the quarter, given its franchise investments in areas like mobile-banking technology, digital lending and brokerage offerings. Additionally, customer remediation expenses and ongoing litigation hassles are likely to have resulted in elevated legal costs in the quarter to be reported.         

Asset Quality: Having already built significant reserves owing to deterioration in the macro-economic backdrop in the first half of the year, Wells Fargo is less likely to have recorded substantial rise in provision for loan losses in the fourth quarter.

Here is what our quantitative model predicts:

Wells Fargo does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Wells Fargo is -0.57%.

Zacks Rank: Wells Fargo currently carries a Zacks Rank of 3.

The Zacks Consensus Estimate of 60 cents for earnings for the to-be-reported quarter has remained stable over the past 30 days. It suggests a fall of 35.5% from the year-ago reported figure.

Further, the Zacks Consensus Estimate of $18.1 billion for quarterly sales indicates a 9% decline from the prior-year quarter.

Wells Fargo & Company Price and EPS Surprise

Wells Fargo & Company price-eps-surprise | Wells Fargo & Company Quote

Banks Worth a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

PNC Financial PNC is slated to report quarterly results on Jan 15. The company has an Earnings ESP of +2.54% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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