Wells Fargo 1st-quarter profit tops expectations as loan losses continue

Wells Fargo earns $2.4B, says credit is improving

CHARLOTTE, N.C. — Wells Fargo & Co. said Wednesday its first-quarter earnings fell 1 percent to $2.37 billion as the bank dealt with continuing losses on consumer loans. It also originated fewer mortgages compared to a year earlier as refinancing activity trickled off.

However, the bank said it believes it has “turned the corner” with its credit problems.

The results surpassed expectations and provided further evidence that the banking industry and the economy are recovering. Wells Fargo rose in early trading and hit a new 52-week high of $34.25, but was down 62 cents, or 1.9 percent, at $33.06 by midday.

Investors appeared to have doubts about consumers’ ability to pay their bills because many banks are still reporting a high number of loan defaults.

San Francisco-based Wells Fargo joined other big banks in the most recent quarter in reporting improvement in their consumer loan businesses.

Wells Fargo executives had been more optimistic than their peers in the banking business in previous quarters, but this reporting season the positive tone was spreading. JPMorgan Chase & Co. was the first big bank to report first-quarter results last week, and its executives were also upbeat. Bank of America Corp. and Citigroup Inc. followed.

Wells Fargo said delinquencies across major consumer loan portfolios, including home equity, auto dealer services and credit cards improved.

“While the U.S. economy is gradually regaining its footing, it has yet to deliver a broad-based recovery for our country and for many of our customers,” Chief Executive John Stumpf said on a call with analysts. “Though the signs of strength we are seeing in the economy are encouraging, we are not counting on them alone to deliver the performance you have come to expect from Wells Fargo.”

Wells Fargo set aside $5.3 billion to cover soured loans during the quarter, down 9.9 percent from $5.9 billion in the previous quarter but up from $4.6 billion in the same period a year ago.

Wells Fargo Chief Credit and Risk Officer Mike Loughlin said on a call with analysts the bank believed its provisions for loan loasses “have peaked.”

Provisions are the extra money that banks set aside to offset current and future loan losses. Investors have been eager to see when those set-asides will fall. Many analysts predict loan losses should peak some time in the first half of 2010.

Wells Fargo earned 45 cents per share after payment of dividends on preferred stock, versus $2.38 billion, or 56 cents per share, a year ago. Analysts expected profit of 42 cents per share in the most recent quarter, according to Thomson Reuters.

Revenue rose 2 percent to $21.4 billion.

The latest results reflect expenses of $247 million, or 5 cents a share, to integrate Wachovia Corp., a Charlotte, N.C.-based bank it acquired in late 2008.

The purchase of Wachovia added a big pool of risky mortgages that were among the worst-performing types of loans during the recession. Wachovia’s portfolio was considered risker than Wells Fargo’s.

For the most recent quarter, all of Wells Fargo’s units produced strong results.

Its wealth, brokerage and retirement unit saw the biggest year-over-year increase in profits, up about 60 percent.

Its community banking unit, which includes consumer banking, saw profits decline by 25 percent to $1.5 billion. The bank said it brought in fewer service charges on deposit accounts, as customers spent less.

Wells Fargo also reported a 25 percent decline in mortgage originations compared to the year earlier, largely due to a dip in refinancing activity.

Trading revenues totaled $537 million in the quarter, representing less than 3 percent of the bank’s total revenue. Competitors like Bank of America, JPMorgan Chase and Citigroup have relied heavily on their large investment banking units to boost profits.

As one of the biggest banks in the country, Wells Fargo’s performance provides insight into the current financial state of consumers. With its 2008 acquisition of Wachovia, the bank’s operations now stretch across the country.