Some investors are in for a disappointment next month, when Wells Fargo & Co. releases its next quarterly earnings report - the first since it acquired First Interstate Bancorp.
So warns Carole Berger, a bank analyst at Salomon Brothers. She contends benefits from the First Interstate merger will be limited in Wells' second- quarter results because the bank is still assimilating the $13.2 billion purchase.
Wells' strategy of selling off unprofitable assets is made more difficult by the larger deposit base it has acquired, Ms. Berger said, because the bank must keep its assets and liabilities more or less matched.
Investors have come to expect stellar results from the bank. Many bought the stock on the premise of quick, dramatic cost savings and an enormous share repurchase, Ms. Berger said.
The analyst said investors will be rewarded long-term, but wonders how patient will they be if the next few quarters are not up to par.
"Cost savings from this consolidation will not begin to snowball until the third or fourth quarters of this year at the earliest," said Ms. Berger. "A slowdown in revenue production was clearly evident in the first quarter, particularly at First Interstate, but also at Wells Fargo.
"The upheaval caused by the merger will continue to plague the second and perhaps third quarters with the bulk of the California branch consolidation not occurring until the third quarter."
Wells closed Tuesday at $24tktk. When Ms. Berger downgraded Wells to "hold" from "buy" in February, Wells' stock traded at $255 a share.
Ms. Berger's 1996 annual earnings estimate of $18.40 per share is more than 6% below analysts' median estimate, according to Zacks Investment Research.
Wells has not made public its quarter by quarter estimates of cost savings. The bank will only say the $800 million in cost savings it predicts from the merger will accrue during the 18 months following the close of the deal on March 31.
Some observers speculated Wells may not want to get Wall Street excited about near-term prospects. If the stock price stays down, Wells saves money on its large share repurchase program.
What ever the intent, not all analysts are concerned about Wells' earnings, which are due out early next month.
"We know Wells will get the cost saves as advertised, if not more, and we know the earnings acceleration will take place in the fourth quarter and in 1997, so I am not sure the second quarter means a whole lot," said Lawrence Vitale, a bank analyst with Bear Stearns & Co.
Mr. Vitale predicts the bank will earn $22.50 in 1996, or 22% more than Ms. Berger expects.
Wells, which has dumped underperforming assets in recent year from mortgages to asset management, is now constrained by the high deposit base.
In the market Tuesday, bank stocks continued to shrug off last weeks problems, when credit concerns caused the sector to decline.
The Standard & Poor's index of major banks rose 0.7% Tuesday, while the overall S&P fell 0.06%.
Gainers included NationsBank Corp., up 87.5 cents to $81, Chase Manhattan Corp., up $1.375 to $70.125, and Fifth Third Bancorp., up $2.25 to $55.50.