This is a summary of the third quarter fiscal 2007 earnings conference call conducted by Wells Fargo & Company (WFC) on October 16, 2007.
Management:
Chief Financial Officer: Howard Atkins
Director, Investor Relations: Bob Strickland
Key Investor Issues:
- Profit was $2.28 billion, or 68 cents per share, representing a 4% increase from net income of $2.19 billion, or 64 cents per share, a year ago.
- The bank''s overall loan losses in the quarter totaled $892 million, up 46% from $613 million at the same time last year.
- The losses represent about 1% of the total loan portfolio, up from 0.86% a year ago.
- Wells Fargo said payments on $1.26 billion in loans were at least 90 days late. That was up by 16%, or $177 million, from last year.
Third Quarter Financial Highlights:
The third quarter was a challenging quarter for the industry with the downturn in the national housing market, deterioration in the capital markets, a widening credit spreads, increases in market volatility and changes in interest rates.
While Wells Fargo is not immune to the environment, the diversity of its business model and its long-standing financial discipline resulted in:
- solid quarterly results with a 6% increase in earnings per share to a record 68 cents per share;
- double-digit revenue growth, driven by double-digit growth in loans, double-digit growth in core deposits, and double-digit growth in fee income;
- continued strong operating margins including positive operating leverage.
The Wholesale and Commercial Banking Group, which serves primarily middle market customers and select niches in the large corporate market, continued to perform well despite the challenging environment.
- Net income grew 6% from a year ago.
- Revenue grew 12%, reflecting strong growth in commercial loans and business deposits and fee-based businesses such as asset management, insurance and international.
- Cross-sell reached a new record with 6.1 products per wholesale relationship and 7.4 products per middle market relationship.
Wholesale Banking Group’s average loans grew by 21% year-over-year and 29% annualized linked quarter.
Asset-based lending, international, commercial real estate and specialized financial services, which include the company’s capital markets activities and relationships with Fortune 500 companies, all experienced double-digit loan growth. Average commercial and commercial real estate loans, which includes commercial loans in the wholesale segment as well as commercial loans in other segments such as small business, increased 16% from third quarter 2006 and 24% annualized on a linked quarter basis.
The company’s commercial and commercial real estate loans have increased for 16 consecutive quarters and have grown at a double-digit rate year-over-year for 12 consecutive quarters. The acquisition of CIT’s construction leasing business added $2.6 billion to quarterly average loans, or about a third of the total 24% linked-quarter growth.
The disruption in the capital markets has not had a material impact on the wholesale customers.
Commercial paper back-up lines remained largely undrawn at Wells Fargo. Approximately $10 billion in commitments with only approximately $400 million drawn at quarter end.
Wholesale Banking Group’s average core deposits were up $19 billion from third quarter 2006, which included certain funds that were previously swept into non-deposit products. Including only the growth in these funds post conversion to deposits, Wholesale Banking’s average core deposits were up 37%. This growth was the result of higher balance growth from existing customers and new relationships, primarily in corporate banking and deposits from foreign Central Banks and from international customers doing business in the United States.
The International Group had double-digit revenue and earnings growth from third quarter 2006. Due to volatility in the currency and credit markets, the Foreign Exchange Group traded a record $17 billion per day in transactions during August, while quarterly volumes were up 28% from a year ago.
The company has foreign exchange trading desks in San Francisco, New York and Minneapolis and sales offices in 11 other markets.
- The company also serves its customers through Foreign Exchange Online, the online foreign exchange platform on the industry leading Commercial Electronic Office portal.
- More than 70% of the commercial banking relationships are active users of the company’s online business portal.
- Foreign Exchange online grew revenue 18% in the third quarter.
- The company serves its retail and small business customers through 300 international teller locations in the banking stores, with 40% revenue growth in the third quarter.
The Asset Management Group, which is responsible for managing and administering a total of $645 billion in client assets, had double-digit growth in revenue, earnings and
assets under management. Assets under management were up 14% from third quarter 2006.
Wells Fargo Advantage Funds grew assets by 19% from a year ago and ended the quarter with $143 billion in fund balances.
