Posted: Jan 27, 2010 06:59 AM by Sham Gad
Not all banks are created equal, and Wells Fargo (NYSE: WFC), one of the most well-run banks in the country, is proof positive. Like fellow competitors Bank of America (NYSE: BAC) and US Bancorp (NYSE: USB) demonstrated, all U.S. banks were not spared the wrath of the real estate and credit markets when they came crashing down.
Managing Risk Management
Yet Wells Fargo has managed to prosper while most have faltered. For the full-year 2009, Wells Fargo earned record net income of $12.3 billion on record revenue of $89 billion. If that wasn't enough, the company's pre-tax pre-provision profit, defined as total revenues minus non-interest expense, was a staggering $39.7 billion. To put this figure in perspective, it was more than twice the amount of net charge-offs. Wells Fargo's numbers are all the more impressive when you consider that both Bank of America and Citigroup (NYSE: C) still continue to report staggering losses. (For related reading, check out 3 Secrets Of Successful Companies.)
An Immensely Profitable Institution
On an earnings per share basis, Wells Fargo earned $1.76 for the 2009 year. Unlike other major banks, Wells Fargo and Goldman Sachs (NYSE: GS) actually did not need the infusion of TARP money. Consider this EPS figure when Wells Fargo was trading for under $10 a share last year. On a going-forward basis, investors could have bought one of the best banks in the country, endorsed by no less than Warren Buffett, for less than four times forward earnings.
While Wells Fargo has clearly demonstrated its superiority among many other financial institutions, the U.S. is a far cry away from a normal credit and real estate market. All that means is a continued environment where Wells Fargo will outshine the rest. In banking, management is everything, and Wells Fargo has excellent management that knows how to manage risk. Today and tomorrow, Wells Fargo will solidify its position as the standard of banking excellence.
For more, check out The Evolution Of Banking.
By Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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