Monday, July 23, 2012

Drought could impact Wells Fargo earnings

The severe drought ravaging farmland in the Midwest could put a dent in the upcoming profits of Wells Fargo, one of the nation's largest crop insurers.

Analysts with investment firm Stifel Nicolaus tried to put a dollar figure on the potential impact in a research note released Monday, as corn crops continue to suffer in one of the worst droughts since 1956.

While Wells Fargo has underwritten about $1.8 billion in crop insurance in affected states since last year, more than three-quarters of that has been reinsured.

Taking that into account and using loss estimates from the severe 2002 drought, the analysts came up with a potential hit of $380 million, or 5 cents per share. They called it "very manageable."

Wells Fargo told Bloomberg that it expects an "extreme claims season," but would not estimate what the ultimate impact would be.