Wells Fargo reported 1Q 2013 EPS of 92 cents, up 23% from the 75 cents earned in the 1Q 2012.
Net income in the 1Q 2013 was up 22%, pretty consistent with the 23% EPS growth.
But there's much more to the true earnings story here.
Wells Fargo's Pretax Income of $7,640 mil in the 1Q 2013 was up a much lower 15% over the 1Q 2012. So what's with that? Well, Wells Fargo reduced its effective income tax rate on a book basis from 35.0% in the 1Q 2012 to 31.7% in the 1Q 2013, due mainly to a one time income tax benefit from the realization for tax purposes of a previously written-down investment. Well, that certainly takes a lot away from the quality of the 23% EPS growth.
But there's much more.
So, Wells Fargo's Pretax Income of $7,640 mil in the 1Q 2013 was $992 mil higher than the Pretax Income of $6,648 mil in the 1Q 2012. So, just what drove this $992 mil Pretax Income Increase?
Well, 78% of it was due to its Provision for Credit Losses in the 1Q 2013 of $1,219 mil being $771 mil lower that that reported in the 1Q 2012 of $1,995 mil. So, yeah that also substantially reduces the quality of Wells Fargo's 23% EPS growth.
So, what else caused this $992 mil Pretax Income increase in the 1Q 2013 over the 1Q 2012?
Well, it's all about much lower Total Noninterest Expense, which declined by $593 mil, going from $12,993 mil in the 1Q 2012 to $12,400 mil in the 1Q 2013. So, just what's going on here? Well, mainly it's a $320 mil Total Noninterest Expense reduction from its Operating Losses Associated with the Independent Foreclosure Settlement, as well as a $109 mil reduction in its expenses related to it Foreclosed Assets. So again, the quality of Wells Fargo's 23% Reported EPS growth in the 1Q 2013 over the 1Q 2012 is deteriorated further.
Pundits who want to pin the massive stock market increase so far in 2013 on the operating results of a Big Financial Firm like Wells Fargo are clearly off target.
