Wells Fargo Expected to Report Higher Profit, Revenue -- Earnings Preview

By Emily Glazer Features Dow Jones Newswires

Wells Fargo & Co., the third-biggest U.S. bank by assets, is expected to report its fourth-quarter results before the market opens Friday. Here's what you need to know.

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1. Higher Earnings Expected

Analysts are expecting Wells Fargo to post per-share earnings of $1.06 for the quarter, according to Thomson Reuters, compared with 96 cents in the year-earlier period. On a reported basis, or under generally accepted accounting principles, earnings per share are expected at $1.70, reflecting one-time effects related to the tax law.

2. Revenue May Rise

Revenue of $22.35 billion is forecast, compared with the $21.58 billion reported in the year-earlier quarter.

3. Tax Overhaul Impact

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Investors will be looking for more information on how the tax overhaul affects Wells Fargo. Unlike many other large U.S. banks, Wells Fargo hasn't provided guidance on the new tax law. And Wells Fargo is different from its big-bank peers in that it has a net deferred-tax liability -- it was about $7 billion at the end of 2016 -- rather than a deferred-tax asset. Due to the fall in the U.S. corporate tax rate to 21% from 35%, other banks will likely have to write down the value of some of their deferred-tax assets, which are essentially IOUs they can use to offset future taxes. Wells Fargo, on the other hand, may end up writing down part of its tax liability -- taxes payable in the future -- which would result in a gain that boosts results.

4. Clarity on Cost Cuts

Wells Fargo is expected to provide specific dollar expense ranges for 2018 in response to questions by several analysts about its costs. The bank shared an ambitious $4 billion cost-cutting plan at its investor day presentation in May. But the bank has operated well above its so-called efficiency ratio for the past five quarters, so investors want more detail on this front.

5. Settlements Ahead

Wells Fargo took a $1 billion write-down in the third quarter over an expected settlement with the Justice Department related to crisis-era sales of mortgage-backed securities. It is also likely the bank will face another settlement with the Office of the Comptroller of the Currency related to its risk management, leading to problems like improperly charging customers for auto-lending and mortgage services. The Justice Department, OCC and other regulators have also been investigating those issues along with the bank's sales-practices problems.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

January 11, 2018 12:14 ET (17:14 GMT)