Wells Fargo reports record profit as credit improves
Wednesday, October 20, 2010; 8:27 AM
Oct. 20 (Bloomberg) -- Wells Fargo & Co., the largest U.S. home lender, reported record third-quarter profit that beat most analysts' estimates as credit conditions improved, and said it's not planning to halt foreclosures.
Net income rose 4.4 percent to $3.34 billion, or 60 cents a diluted share, from $3.24 billion, or 56 cents, in the same period a year earlier, the San Francisco-based bank said today in a statement. Analysts surveyed by Bloomberg estimated profit of 56 cents. Revenue dropped 7.1 percent to $20.9 billion.
"Wells Fargo continues to be one of our top picks," Oppenheimer & Co. bank analyst Christopher Kotowski wrote in a Sept. 20 report. "Near term, the continued improvement in asset quality will be the driver."
Wells Fargo Chief Executive Officer John Stumpf, 57, is more than halfway through the integration of Wachovia Corp., the lender bought at the depths of the credit crisis, and is using the economic recovery to streamline businesses. In July, the lender said it slashed 3,800 jobs and closed its consumer- finance branch network.
Results included a 13 percent increase from community banking and 2 percent in wholesale banking, according to the bank. Net loan charge-offs dropped 9 percent from the second period, the bank said.
Wells Fargo shares fell 32 cents, or 1.3 percent, to $24.55 in New York Stock Exchange composite trading yesterday. They slid less than 1 percent to $24.43 at 8:09 a.m. in New York today. The shares declined 9 percent this year, ranking among the worst performers in the 24-company KBW Bank Index.
The bank ranks among the biggest mortgage servicers, which perform billing and collections, and is seeking to reassure investors it's not among companies that seized homes based on faulty documents. Attorneys general in all 50 states started a probe into foreclosure practices after court documents surfaced showing employees signed papers without ensuring their accuracy. That prompted Bank of America Corp., JPMorgan Chase & Co. and Ally Financial Inc. to suspend some foreclosures.
"We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate," Stumpf said in the statement. "For these reasons, we did not, and have no plans to, initiate a moratorium on foreclosures."
In a May 20 deposition, a Wells Fargo employee said he signed 50 to 150 documents a day without personally confirming the information was correct. A judge dismissed that case in June. The bank said it's reviewing pending foreclosures in 23 states to provide "further assurance" that information is correct, according to an Oct. 12 statement from spokeswoman Vickee Adams.
Earlier this month, the company agreed to pay $24 million to eight states and make more than $772 million in loan modifications to resolve allegations that Wachovia deceptively marketed adjustable-rate mortgages.
Net charge-offs fell to $4.1 billion from $4.5 billion in the previous quarter. The company set aside $3.5 billion to cover those losses, releasing $650 million of reserves in the quarter, according to the statement.
Wells Fargo is the last of the four biggest U.S. banks to report results. JPMorgan Chase & Co., ranked second, reported a $4.42 billion profit Oct. 13, while Citigroup Inc., ranked third, announced quarterly net income of $2.17 billion Oct. 18. Bank of America Corp., the largest U.S. bank by assets, posted a $7.3 billion loss tied to new federal rules on credit cards.
Shares of banks have fallen over the past week amid speculation faulty mortgage documents may mean lenders will have to buy back billions of dollars in loans from mortgage-bond investors who will challenge the paperwork. Forced repurchases for the industry may total $55 billion to $120 billion, or potentially $10 billion to $25 billion for the next five years, JPMorgan analysts led by John Sim and Ed Reardon wrote in an Oct. 15 report.