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Wells Fargo (WFC) earnings preview: No surprises expected in Q4. Here’s why

Wells Fargo & Company (NYSE: WFC) is preparing to publish the first quarterly report under new CEO Charles Scharf, who faces the tough task of navigating the company through a very difficult phase. After reporting flat revenues in the first three quarters, the bank will be unveiling its latest numbers on January 14 at 8:00 am ET. Initial estimates indicate that the recent trend continued in the fourth quarter.

wells fargo wfc q3 2019 earnings results. wells fargo reported mixed bag

In a sign that the financial services giant might end the fiscal year on a disappointing note, analysts forecast an 8% decrease in earnings to $1.11 per share for the December-quarter. Revenues are seen falling 4% annually to about $20 billion.

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The company, which faced investigations into a notorious fake account scandal involving its employees, has paid several million dollars in fines. There is caution among investors as the bank might come under scrutiny this year. The majority of Street analysts have given the stock hold rating, with a target price of about $56 that represents a 6% upside.

Challenges

It needs to be noted that Wells Fargo is operating under the restrictions imposed by the Federal Reserve on its balance sheet a couple of years ago. Considering the potential impact of the recent interest rate-cuts on profitability, the management is likely to initiate steps to reduce operating costs. However, stable loan growth might offset the negative impact to some extent.

It is widely expected that the Federal Reserve would continue with its dovish monetary policy, after last year’s back-to-back rate-cuts, considering the uncertainties in global trade and slowdown in corporate lending.

Q3 Outcome

In the third quarter, revenues remained flat at $22 billion – as they did in each of the preceding two quarters – hurt mainly by weakness in the wholesale banking segment, the company core segment. Consequently, earnings dropped 19% to $0.92 per share and missed Wall Street’s projection.

Competitors

Among others, Citigroup (C) is all set to publish its fourth-quarter results on Tuesday before the market opens. Analysts see a 15% increase in earnings to $1.85 per share on revenues of $17.9 billion, which is up 5% from last year.

Related: Wells Fargo Q3 2019 Earnings Conference Call Transcript

Wells Fargo’s shares are yet to fully recover from the multi-year lows seen mid-2019, though they regained momentum. But, the stock reversed the trend as it entered 2020 and lost about 2% in the initial days of the year.

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