I admit I'm new to bank stocks. I thought the earnings report was quite good. The P/E ratio and dividend are excellent. Any thoughts on why it went down today? I would appreciate serious responses and not just mindless bashing.
Because Mortgage Originations were down 43% percent from last year & that's one of their core businesses. They still make a nice net profit for such a large firm, but investors did not like that piece of information. Status quo for another several months, but when they see an uptick in housing, that will be the next leg up....else, it's just a large company with a 3% yield, which is not bad & they've already announce that they'll increase that again very soon. Buy more in about a month or two...if there's a 5% dip.
Profit = Revenue - Expenses. Record profit doesn't mean as much when it stems from a reduction in both revenue and expenses or unusual items. They had so much profit because they released reserves (the money they put on the side in case of bad loans) but that's not going to happen every quarter. The biggest thing for WFC is always mortgages and they didn't do so well in mortgages this quarter - people worry when their revenue from mortgages doesn't go up. If mortgages don't go up, they won't make as much money.
The housing market (and in turn, mortgages) are a big concern for most of the big banks as they all provide mortgages.
How large the drop in preprovision profit was primarily to the drop in mortgage income. YOY pre-provision profit was down 8%. They've been releasing reserves due to strong credit performance but those are largely one-off things. In the long-run you should expect to see pre tax provisions of about 1% of loans on average, about $2 billion a quarter currently for wells fargo.