Wells Fargo Reports…..

I’ve said it before and i’ll say it again……financials earnings are not to be taken at face value…..Until access to capital is normalized they are essentially making money off cheap gov’t funds. Because of that, saying this was a good/great quarter isn’t totally true. For what it is worth, the same can be said of every other bank also, this is not unique to Wells.

Here is the Wells Fargo (WFC) press release:
WFC Q2 2009

The stock is selling off because of the build in reserves. The expectation from WFC is that the current levels will cover losses there for the next 12-24 months. It is a guess, nothing more. We are in times that none of the managers there have gone through (or at any other banking institution) so to say “we have enough for “x” time frame” is an educated guess, nothing more.

I am still holding WFC shares (down about 10%) because I still think two years from now, there will be essentially three banks left, WFC, Bank of America (BAC) and JP Morgan (JPM) along with thousands of players dwarfed by those three.

Why WFC? If/when Congress decides these institutions are now “to big to fail” and decides to pass legislation to make them less so, my guess is that the investment bank divisions will be the ones separated from the depository institutions. If that happens BAC and JPM will be much more adversely affected than WFC which has made a huge push into insurance services over the last year and whose recent results are less dependent on those operations.

Disclosure (“none” means no position):Long WFC