Wells Fargo posts $2.5 billion profit

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- Wells Fargo Co. said Wednesday that first-quarter profit fell versus the same period last year, although the results were better than analysts expected.

The San Francisco-based bank reported first-quarter net income of $2.5 billion, or 45 cents per share, for the first three months of 2010. That's down from net income of $3.05 billion, or 56 cents per share, in the first quarter of 2009.

The results included a charge of 5 cents per share related to the integration of Wachovia Bank, which Wells bought in 2007.

Analysts had forecast earnings of 42 cents per share, according to Thomson Reuters.

Shares fell about 1.7% to $33.11 in morning trading.

Wells said profits rose across all business segments and that credit conditions have "turned the corner" from the weakness of the financial crisis.

John Stumpf, Wells Fargo's chief executive, said he was "encouraged" by improvements in credit conditions at the bank. But he warned that the economy "continues to present challenges" and cautioned that consumer spending and borrowing remain below past levels.

Wells said loan writedowns in the quarter totaled $5.3 billion, or 2.71% of average loans, down slightly from $5.4 billion the previous quarter.

Mike Loughlin, chief credit and risk officer at Wells, said loan losses and provision expenses peaked in the fourth quarter of 2009, adding that those costs will continue to decline going forward.

In addition, Wells said early-stage delinquencies on consumer loans improved in the quarter. Delinquencies declined across all of Wells' major consumer loan portfolios, including home equity, auto loans and credit cards.

"Our credit picture has improved earlier than we had anticipated," Loughlin said.

Bernstein analyst John McDonald said Wells has lagged its peers a bit in recovering from the credit crisis, but he added that Wells' purchase of Wachovia has positioned the bank for long-term growth.

"We like the franchise and earnings power story at Wells Fargo, as it begins to capitalize on growth opportunities from the Wachovia acquisition and realize meaningful credit leverage in 2011 and beyond," McDonald wrote in a research report.

Despite an improved credit picture, the results showed that loan demand remained weak in the quarter. Mortgage originations, for example, totaled $76 billion in the first quarter, down from $94 billion in the prior quarter.

"While we continued to supply significant amounts of credit to consumers and businesses in the first quarter, as we have done throughout the credit crunch, loan demand remained soft," said Howard Atkins, chief financial officer at Wells.

Meanwhile, the bank had a total of $31.5 billion worth of "nonperforming assets" on its books, up 14% from $27.6 billion in the year-ago period. Wells said it expects to continue holding a high level of nonperforming assets in the near term.

Foreclosed assets increased 30% in the quarter. But Wells said it continued to help struggling homeowners remain in their homes, with over 500,000 active and completed trial mortgage modifications in the quarter.

"There have been times in my life I've been upside-down on a mortgage," Stumpf told analysts in a conference call. "And if you get people a job and they want to stay in their home, they pay."

Wells' (WFC, Fortune 500) results were the latest in a string of better-than-expected quarterly profits in the banking sector. JP Morgan (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500) and other big financial names have reported blockbuster profits in recent days.  To top of page

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