Compass Point Downgrades Wells Fargo (WFC) to Neutral; 'Can't Fight the Fed'
The firm comments: "It has become apparent that the company will have a difficult time showing meaningful earnings growth in the next year due to: (1) interest rates at historic lows, (2) 13% of the loan portfolio in run-off and (3) expenses above a $12 billion quarterly run rate. Furthermore, the company's recent decision to keep conforming mortgages on the balance sheet, versus selling to the GSEs, illustrates the predicament WFC finds itself in. The company does not want to turn away deposits because they could prove to be valuable when rates are higher, but needs to find a place to park the excess liquidity. If they buy MBS securities, they risk premium amortization from ultra-low rates, but if they put it on their balance sheet, they are taking greater duration/interest rate risk. Either way, this dynamic makes it very difficult for WFC to grow its top-line."
The firm lowers FY13 EPS to $3.50 from $3.65 due to lower asset yield.
Longer-term, the firm believes WFC is well positioned to take advantage of a pickup in economic growth and higher interest rates, but will have a difficult time reaching earnings expectations without implementing significant expense saving initiatives with rates at these levels.
For an analyst ratings summary and ratings history on Wells Fargo click here. For more ratings news on Wells Fargo click here.
Shares of Wells Fargo closed at $34.25 yesterday, with a 52 week range of $23.19-$36.60.