Wells Fargo Proves Good Banks Can Make Money

dollar-100-bill While traders and investors have wondered whether or not the recent stock market rally signaled a bottom for the markets, another question has hung in the air.

How are the banks doing, and will any of them be able to make money, or are they just all going to be depending on big government handouts to survive?

Wells Fargo helped answer part of that question Thursday morning when they projected profits of $3 billion or 55 cents a share.

PROFITS?

Yesterday’s news was about how Bank of America would probably need ANOTHER $30 billion or more in order to survive according to certain analysts.  So, today’s news comes not as a shock, but a welcome surprise.  Unfortunately for Bank of America, Wells Fargo’s good fortunes will undoubtedly raise questions about whether or no Bank of America really needs more money, and if so why.  And, of course, why can’t they be more like Wells Fargo.

Even more interesting, the numbers Wells Fargo has stated are AFTER paying preferred dividends.  This is important because the government bailout money that came flowing into banks did so mainly as preferred stock investments.  Some analysts have questioned the bank’s ability to repay the government and the dividends.  Wells Fargo, at least, seems to be able to meet its obligations, and the US government should be happy to hear that $372 million is on the way back. 

If more banks are able to follow in Wells Fargo’s footsteps, then the government banking bailout will be a rousing success, but time will tell if this is wishful thinking on Wells Fargo’s part, or if anyone else will be able to come along for the ride.

Ironically, the main factor cited by the company for its good news?  Mortgages.

While other banks were cowering behind their big metal doors hoping for government bailout checks and for someone else to get the economy going, Well Fargo was lending money to people buying houses, which if you aren’t an idiot about it, and keep your sub-prime lending subservient to your prime lending, can be very profitable.

Of course, all the happy hoopla does not take into account that Wells Fargo did have to cut its dividend from 34 cents per share to 5 cents per share earlier this year, but with the kind of bad news the market is expecting for this quarter’s earnings season, I think we can forgive everyone for looking on the bright side this morning.

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