Wells Fargo Sparks Surge in Financial Markets
by Hiland Doolittle
Wells Fargo, the nation’s fourth largest bank, fueled an optimistic market surge on Thursday in projecting a record $3 billion first quarter 2009 profit. The markets steamed ahead with the DOW surging 3% and hovering around the 8000 mark. Surprisingly, the bank provided more than $100 billion in home loans to more than 450,000 customers in the first quarter.
These figures not only gave credence to the bank’s takeover of Wachovia Bank but also soothed a market and nation groping for good news from the mortgage industry. The market 
was impressed with the sheer volume as industry analysts had expected mortgage sales of about $86 billion. The bank has another $100 billion in mortgages waiting to close.
The good news was timely. On Friday, the Obama administration will take a long, hard look at the results of the regulatory stress tests recently concluded at many of the country’s 19 largest banks. Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila Blair, the SEC’s Mary Schapiro, Comptroller of the Currency John Dugan and Economic Advisor Larry Summers will be in attendance for the Friday session. The stress tests will be reviewed and a plan set forth to continue the banking industry’s stabilization.
Several of the largest banks, including Goldman Sachs, have revealed strategies to escape government intervention by repaying borrowed TARP funds as soon as possible. Shares in Wells Fargo jumped 31.7% on Thursday and carried several other bank stocks along for the ride.
Stress Tests are Critical
In an interview with CSNBC, Warren Buffet laid it on the table, declaring the country is “in an economic war.” Buffet stressed that the feuding political parties needed to put petty differences aside and understand the severity of the problem. Buffet raised serious concerns about the state of middle America. The “billionaire next door” supported temporary tax breaks for the middle class and seemed agreeable to tax increases for the wealthy.
Buffet went to the core of the recovery firmly stating his belief that the American banking system must be preserved at all costs. The statement rang as an endorsement for President Obama’s expected request for more money to shore up the tottering financials.
With most banks preparing to report their earnings on April 24th, markets expect good quarterly earnings. The government has asked banks to treat the stress tests with confidentiality until proposed remedies are formulated. As of yet, the government’s assessments have not been released to the banks. The purpose of the tests is to determine the capital needs of the banking industry.
Market analysts have been clear that solid first quarter profits are hardly an endorsement for an institution’s overall health. Once a bank’s capital needs are determined, that institution will have six months to either raise the money privately or accept an infusion from the government. In the taxpayer’s interests, government infusions will be accompanied by regulatory stipulations. Results of the stress tests will be released before the end of April.
Behind the Wells Fargo Numbers
Conservative analysts view the Wells Fargo numbers with concern and a fair amount of skepticism. A research representative of Morgan Stanley summed up expert’s fears.
Investors are concerned about how WFC will fare in the stress test given its residential mortgage concentration. We do not bake in a capital raise but would not be surprised if WFC proactively raised capital to take this issue off the table
Richard Ramsden of Goldman Sachs said:
several critical pieces of information were missing, including asset quality and securities exposure.
This view may well apply to many of the nation’s top banks and may yield alarming news once the stress tests are revealed. In the meantime, the Wells Fargo report was a welcome shot in the arm to Wall Street as markets continued their upward trend from March.
World Markets Hopeful
As Wells Fargo sent a signal to the street, Japan announced a government spending plan of $154 billion to raise the sagging economy. Spurred by low interest rates and an aggressive stimulus package, South Korea, Asia’s fourth largest economy, declared a surprising 0.2% quarterly growth rate, which helped them to avoid a recession. China added more good news reporting an improvement on February’s dismal 25.7% export slide with a better than expected 17.1% March slide.
As markets headed into the long weekend, the mood was generally upbeat. Takahiho Murai, of Nozomi Securities, said:
The Nikkei is likely to test this year’s peak of around 9300 in the near term supported by growing optimism towards the U.S. economy
U.S. exports grew slightly in February as imports sagged. The 28.3% trade deficit was the best since November of 1999. While unemployment showed a temporary easing, the overall picture continues to press hard on retailers.
The S&P 500 closed the week with another 1.7% gain as the DOW jumped 0.8% and the Nasdaq climber 1.9%. Wall Street welcomed the Good Friday holiday as investors look to next week with guarded anticipation of more signs of a recovery.
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
