Wells Fargo results ease fears, shares surge : US Business

By Jonathan Stempel

NEW YORK (Reuters) - Wells Fargo & Co , the fifth-largest U.S. bank, reported unexpectedly strong quarterly results on Wednesday and raised its dividend despite a surge in bad loans, and its shares soared.

Profit fell 23 percent as the bank more than quadrupled the amount it set aside for loan losses. Wells Fargo nevertheless benefited from an expanding lending margin and higher fees from mortgages and insurance, adding market share as weaker rivals struggled with credit losses and capital shortages.

The results pleased investors expecting weak or poor results from the nation's biggest banks. In morning trading, Wells Fargo shares were up $4.04, or 19.9 percent, to $24.55.

"Stronger banks will benefit handsomely from the credit crisis, and investors view Wells Fargo as a high quality institution that can take advantage of stress in the market," said Chris Hagedorn, who helps invest $21.4 billion at Fifth Third Asset Management in Cincinnati.

Net income for San Francisco-based Wells Fargo fell to $1.75 billion, or 53 cents per share, from $2.28 billion, or 67 cents, a year earlier, the third straight quarterly decline. Revenue rose 16 percent to $11.5 billion.

Analysts on average expected profit of 49 cents per share on revenue of $10.7 billion, Reuters Estimates said. The bank raised its quarterly dividend 10 percent to 34 cents per share. Many rivals are cutting their payouts to preserve capital.

"We are still affected by the weak economy, but we believe we are one of the best positioned in financial services to grow through this adversity," Chief Executive John Stumpf said in a statement. "We are open for business and getting lots of it."

Wells Fargo has weathered the credit crisis better than many rivals, having limited its exposure to subprime mortgages and other risky home loans despite being the nation's second-largest mortgage lender.

The bank set aside $3.01 billion, up from $720 million a year earlier, and net charge-offs more than doubled to $1.51 billion. Nonperforming assets nearly doubled to $5.23 billion.

Wells Fargo said its new policy of writing off home equity loans where payments were more than 180 days late, rather than 120, resulted in the deferring of $265 million of charge-offs.

Billionaire Warren Buffett's Berkshire Hathaway Inc is Wells Fargo's largest investor, owning 8.8 percent of its stock as of March 31, Thomson ShareWatch said.

Wells Fargo is the first of the five largest U.S. banks to report results. JPMorgan Chase & Co is slated to report on Thursday, Citigroup Inc on Friday, Bank of America Corp on Monday and Wachovia Corp on Tuesday.

CREDIT CRISIS CREATES OPPORTUNITY

Fee income from mortgage banking, including loan servicing, rose 74 percent from a year earlier to $1.2 billion. Mortgage lending fell 21 percent to $63 billion. Applications totaled $100 billion, and 44 percent were for refinancings.

Insurance fee income rose 27 percent to $550 million, while credit card fees increased 14 percent to $588 million.

"The credit crisis is giving us plenty of opportunities to grow," Chief Financial Officer Howard Atkins said in an interview. He said the bank is probably adding market share in middle-market commercial banking, retail mortgages, and mutual funds and asset management."

Net interest margin, the difference between what the bank earns on loans and pays on deposits, rose to 4.92 percent from the first quarter's 4.69 percent, and from 4.89 percent in last year's second quarter.

Profit fell 18 percent to $1.23 billion from retail banking, and 10 percent to $557 million in wholesale business banking. Wells Fargo Financial, which lends to less creditworthy people, generated a $38 million loss.

The bank said it now sells an average 5.6 products to each retail customer and a record 6.3 to each business customer, a result of its key strategy of "cross-selling" multiple products for each customer.

Wells Fargo's Tier-1 capital ratio, which measures its ability to cover losses, rose to 8.24 percent from 7.92 percent at the end of March. Regulators consider 6 percent sufficient.

The company said it has about 3,318 branches in 23 U.S. states, and $609.1 billion in assets.

Through Tuesday, Wells Fargo shares had fallen 32.1 percent this year, compared with a 45.3 percent decline in the KBW Bank Index <.BKX>.

(Editing by Dave Zimmerman)

(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.