Wells Fargo & Co (NYSE:WFC) reported lower earnings for the second quarter on Tuesday as it grapples with low interest rates resulting in loan growth but lesser profits. The firm reported net income of $5.72 billion, or $1.03 per diluted common share, for the just-ended quarter, down from $5.73 billion, or $1.01 per share, for the second quarter 2014. EPS increased because of continuing share buybacks reducing the number of outstanding shares. Revenue was reported to be $21.32 billion, up from $21.07 billion in the second quarter of 2014.
Wall Street was expecting earnings of $1.03 per share on $21.7 billion in revenue. The bank reported strong growth in average loans and deposits, with total average loans of $870.4 billion, up $39.4 billion from the same quarter last year. Total average deposits was also reported to be $1.2 trillion, up by $83.8 billion. Wells Fargo & Co (NYSE:WFC) also highlighted continued strength in credit quality, as net charge-offs declined to $650 million in the second quarter of 2015, a $67 million drop from the second quarter of 2014. The financial behemoth also said that it had maintained strong capital levels, evidenced by its 10.5% Common Equity Tier 1 ratio under Basel III (fully phased-in). Wells Fargo also boasted of continued share buybacks and an increase in its quarterly common stock dividend to $0.375 per share from $0.35.
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Loan growth did not directly correlate to profitability, however, as the net interest margin of the firm, used to gauge how profitably it loans out deposits of customers, was reported to be 2.97% in the latest reported quarter, down from 3.15% a year ago. Costs also went up by 2.3% to $12.47 billion for the firm. Furthermore, some units of Wells Fargo & Co (NYSE:WFC) sailed rougher seas than others. The Mortgage business of the firm posted $1.71 billion in earnings for the just-ended quarter, down from $1.72 billion in the same quarter last year. The slide in the firm’s earnings seems to have investors worried, as the stock’s price also slid to $55.90 per share in pre-market trading, down by 1.45%. Year-to-date, the stock has climbed by 3.47% (not factoring in the pre-market dip).
It appears that the smart money tracked by Insider Monkey foresaw the performance difficulties of the firm for the just-ended quarter. Wells Fargo & Co (NYSE:WFC) was in 72 hedge funds’ portfolios at the end of the first quarter of 2015, down from the 78 hedge funds in our database with Wells Fargo holdings at the end of the previous quarter. The value of the holdings, however, increased, although at a nominal 0.41% quarter-over-quarter to $31.81 billion on March 31. The firm’s shares declined by 0.77% in the first quarter.
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Furthermore, Insider Monkey tracks insider transactions such as buying or selling of shares by company executives or other insiders. This tells us whether insiders are also bullish on their firms’ shares. Wells Fargo & Co insiders have not purchase any shares of the company this year. Senior Executive Vice President Michael Loughlin, on the other hand, sold 20,000 shares on June 2. Timothy Sloan, also a Wells Fargo Senior Executive Vice President, sold 50,000 shares of the firm on May 15.
Bearing all of this in mind, we’re going to take a glance at the recent hedgie activity regarding Wells Fargo & Co.
How are hedge funds trading Wells Fargo & Co (NYSE:WFC)?
According to hedge fund intelligence website Insider Monkey, Warren Buffett‘s Berkshire Hathaway had the number one position in Wells Fargo & Co (NYSE:WFC), holding 470.29 million shares worth close to $25.58 billion, corresponding to 23.9% of its total 13F portfolio. On Berkshire Hathaway’s heels is Lansdowne Partners, led by Alex Snow, holding a $1.09 billion position in 20.09 million shares; the fund has 9.8% of its 13F portfolio invested in the stock. Other hedgies that are bullish consist of Ken Fisher’s Fisher Asset Management, Tom Russo’s Gardner Russo & Gardner, and Patrick Degorce’s Theleme Partners.
Because Wells Fargo & Co (NYSE:WFC) has faced bearish sentiment from the smart money, logic holds that there exists a select few hedgies that slashed their entire stakes heading into the second quarter. It’s worth mentioning that Crispin Odey‘s Odey Asset Management Group dropped the biggest position in the first quarter of all the hedgies tracked by Insider Monkey, selling all 2.18 million shares it had held on December 31, which were valued at about $119.69 million at that time. John Burbank’s fund, Passport Capital, also cut its 707,365-share stake, a position worth about $38.78 million.
Due to the bearish sentiment, we don’t recommend a long position in Wells Fargo & Co (NYSE:WFC) at the moment.
Disclosure: None
