Wells Fargo & Co. is losing its luster in the eyes of some investors.
The stock has slipped 2% since a July 16 analysts' meeting where the bank released disappointing earnings and merger results, while its peers' shares have risen in the last week.
In fact, Wells' stock has now fallen 15% since the April 1 close of its merger with First Interstate Bancorp, compared to a far smaller 3% dip in the American Banker index.
Before last week, the bank had not divulged any merger news since January, when it won a hostile bidding war for First Interstate.
Investors have been concerned results would not match Wells' predictions, and last week's disclosure validated suspicions, fueling the selloff in the bank's stock.
Investor support was critical to Wells' success during the contest with First Bank System Inc. The long slide in Wells' stock underscores that friendly investors can turn on a company if results are not delivered quickly.
"It is always disquieting when a bank lays out a timetable and then it doesn't work like they thought it would," said James Schmidt, who manages $3 billion of financial services equities for John Hancock Investors and counts Wells as one of his largest holdings.
"They are supposed to be the experts on this, they said they could do it, and they have not been able to deliver."
Wells has not changed any of its fundamental projections regarding the $13.2 billion merger, the largest in U.S. banking history. The bank still expects to get $800 million in annual cost savings, and its accretion per share and earnings projections remain unchanged, according to analysts who participated in a conference call with bank officials last week.
But the cost savings will now take all of 18 months to reap, instead of the 15-to-18 months Wells had predicted during the heat of its merger battle, analysts said.
And while Wells had said half the savings would be reached within six months of the merger, the period is now expected to be nine months.
Wells told analysts that the original projections were based on a friendly deal, and the hostile bid delayed the savings gains. Many investors have expressed shock Wells had not used the new projections all along, since its deal was clearly always hostile.
"I wouldn't say any investors were snookered, but you had to take some of what Wells was saying with a grain of salt," said Carole Berger of Salomon Brothers, who issued a report last month warning Wells might frustrate investors. "They were making projections during the battle without having seen Interstate's books."
Wells did not respond to American Banker's requests for comment. Bank officials told analysts that it had to review Interstate's books - which it acquired in January when Interstate acquiesced to Wells - before revealing revised estimates.
During the merger battle, Wells had projected positive revenue growth this year. It is now predicting zero 1996 revenue growth, and only a meager 5% 1997 rate, analysts said.
Other changes included higher-than-expected goodwill amortization charges and faster expense growth.
For Wells, whose stock has doubled in the past three years and counts billionaire investor Warren Buffett as one if its largest shareholders, the recent news has interrupted a long string of positive results.
The bank is at the forefront of delivering banking services in nontraditional ways, and its return on equity is consistently one of the highest in the industry.
"Wells was being viewed as bulletproof and now there are a few chinks in its armor," said Campbell Chaney, a bank analyst with Rodman & Renshaw in San Francisco. "You had this perception of a superhuman management team, but now they are showing they are somewhat human."
Many of Wells' longtime supporters in the analyst community have rallied behind the bank.
"Wells gave out a lot of numbers, and I think there were a few poor souls who got confused," said Thomas Brown, an analyst with Donaldson, Lufkin & Jenrette. "Some of the people who sold the stock had been Interstate investors, or were momentum players who thought there would be just good news from here on."
Mr. Brown predicted the stock would rise 42% to $380 in the next 18 months. But that is less optimistic then prior to the analysts meeting last week, when he said growth would be achieved in a year.
But while Mr. Brown lauds Wells for its credibility and names it his top pick, Hancock's Mr. Schmidt and other investors say the bank has slipped a notch.
"I don't think they lied to us, but when you are on that high a pedestal you have further to fall," Mr. Schmidt said. "While still higher than the average bank, their credibility has moved closer to normal."
