July 16, 2008 – 1:36 pm

Wall Street put on the party hats today as Wells Fargo’s stock shot up 23 percent after the company reported second quarter 2008 earnings that were down 22 percent year-on-year. Yippie! Let’s take a look:

  • Revenue soared 16% to a record $11.5 billion, on strength in the bank’s deposits, mortgage banking, credit card, and wealth management businesses.
  • Wells Fargo & Co. earned $1.75 billion, or 53 cents per share, in the April to June period, down from $2.28 billion, or 67 cents per share, in the same time frame last year. Analysts polled by Thomson Financial had predicted, on average, a profit of 50 cents per share on revenue of $10.65 billion.
  • The bank increased its quarterly dividend by 10%.

Thats mighty impressive to city folk, just listen.

“This is the first fairly positive data point that we’ve had for the banking industry – we haven’t seen any really strong results in the first half,” said Byron MacLeod of Gradient Analytics. “This is where you’re going to begin to see some stratification between those that are conservatively positioned, and those that aren’t.”

Well, now hold on there pardner. That’s sure a lotta city breed fancy speak, but we’ve seen this kinda cow poop from Fargo before. First, things are so screwed that you call three straight quarters of profit declines a “fairly positive data point.” I don’t. And “stratification between those that are conservatively positioned, and those that aren’t” – that just means some will fail before others do. I just don’t get these city folk, but let’s move along.

  • Mortgage banking and wealth management businesses, are both deader than a door nail now and folks ran up their credit cards to pay bills, those defaults will be coming home soon.
  • Wells Fargo & Co. earned 53 cents per share vs the 50 cents per share they told analysts to estimate
  • Just laugh

Oh yeah, before I forget – remember back in last April when the bank changed the way it reported defaulted loans by stretching the period a feller had to wait to be declared in default. They took the default time up to 180 days from 120 days. Now I know stuff like that impresses the hell outa city folk, but out here it smells like a bunch crap.

Ya see boyz and girls, loan loss reserves are a direct measure of management’s best estimate of future losses, or in other words loans the bank doesn’t expect to be repaid. Witness:

The bank took a provision for credit losses of $3 billion. That provision included total charge-offs of $1.5 billion, and an increase in reserves for future losses of $1.5 billion. Wells Fargo’s total allowance for credit losses now stands at $7.52 billion, up from $6.01 billion at the end of the first quarter.

Out here we don’t know and we’re not sayin, but back when the credit bubble was blowin’ on up, Fargo let folks use their living room like a ATM. Now the big water balloon has burst all over their tuxedos:

As the economy has turned sour and more borrowers have fallen behind, lenders have apparently stepped up their use of offsets to collect overdue loans. Consumer complaints and inquiries about offsets filed with the Office of the Comptroller of the Currency, the agency that regulates nationally chartered banks such as Bank of America and Wells Fargo, ballooned to 576 in the first half of 2008 from 151 such cases in the first half of 2007, according to spokesman Kevin Mukri.

Somebody ain’t gonna be payin’ and $3B is a big egg to lay aside per quarter.

You know, it’s gonna take a lot more than 3 cents a share and fancy speak to fix all this mess, but I don’t think them city folk quite get the message yet.

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