There are a couple of factors which will play primary roles in the results reported by Wells Fargo (NYSE:WFC), and that is how the $2 billion of reduced shareholder income will affect their bottom line, and how well the mortgages from Wachovia performed, and if they’ve improved like some analysts feel they have.
I don’t think the $2 billion from paying back TARP will have a lot of effect on the response to the fourth-quarter report, as most will understand the one-off nature of the payout. What will have a strong impact on response from investors and shareholders will be the condition of the ARM mortgages at Wachovia and whether they’ve improved since Wells Fargo acquired the company.
With many more re-sets in the first quarter ready to deluge banks, having an improved mortgage outlook could help Wells Fargo in the near term.
Assuming the option-ARM mortgages from Wachovia are actually in better shape than originally thought, that would possibly be the best news Wells Fargo receives as far as it relates to the longer outlook, as many of its competitors continue to struggle strongly in that sector, as the results of Citigroup’s (NYSE:C) fourth quarter yesterday showed.
How this would help Wells Fargo is their net interest income line could be improved by the release of reserves which could be targeted there.
Reserves at the bank as of the end of the third quarter stood at $24 billion, which entails about 3 percent of the overall loans the company provided.
Wells Fargo seems positioned to make a good move forward, especially if the reports are true that losses from ARMs aren’t near as bad as thought. With the first half of 2010 expected to be the worst time for defaults in that area and the second half to experience heavy defaults on commercial loans, the condition of ARMs from the Wachovia acquisition remain important for the rest of 2010.
Today Bank of America will report their fourth-quarter results, and Wells Fargo will report approximately an hour later.
