Wells Fargo's Solid Q3 Overshadowed By An Uncertain Future

Barclays' large-cap bank analyst Jason Goldberg highlighted in a research report several positive factors in the bank's earnings. For instance, the quality of Wells Fargo's earnings "improved" through lower debt and equity and MSR gains. Moreover, core trends were "on track," but monthly customer activity figures "bear watching post recent headlines."

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The analyst also pointed out that a 2 percent growth in net interest income serves as a sign of continued balance sheet growth. Other highlights include an 8 percent growth in core fee income (led by mortgages), a lower loan loss provision (-25 percent), a lower tax rate (70 basis points) and a 0.7 percent reduction in its share count.

Goldberg also noted that Wells Fargo's decision to shift its community banking business model to a more service-oriented culture from a sales oriented one will need some time until the true impact is observed.

Despite the many positives reported in the quarter, the results were "eclipsed" by the ongoing scandal. However, the analyst argued that the $20 billion-plus decline in Wells Fargo's market cap over the past five weeks "may prove to be excessive over time."

Bottom line, a decrease in new account growth and activity and higher compliance and monitoring costs is prompting the analyst to lower his price target on Wells Fargo's stock (while maintaining an Outperform rating) to $56 from a previous $58.

At last check, Wells Fargo was trading flat, off its opening price by a penny at $44.72.

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