Wells Fargo & Co. on Wednesday took a more optimistic view than other banks about consumer resilience, after it reported a surprise profit for the fourth quarter.
The bank did say problems remain in lending portfolios and another downturn in the economy would hurt profitability. But unlike the extremely cautious tone other banks such as JPMorgan Chase & Co. and Citigroup Inc. have taken in recent days on the health of the consumer, Wells Fargo provided a rosier picture for 2010.
Mike Loughlin, Wells Fargo's chief credit and risk officer, said, "While losses remained elevated during the quarter as expected, a more favorable economic outlook and improved credit statistics in several portfolios further increase our confidence that our credit cycle is turning."
Investors have been disappointed recently about big banks' uncertainty over when consumers would find their footing. With Wall Street having already recovered, the focus is now firmly on when that rebound will spread to Main Street. Declining loan defaults, for example, would show investors that the economy is turning around.
The San Francisco bank earned $394 million after paying preferred dividends, or 8 cents per share, when analysts polled by Thomson Reuters were expecting a loss of 1 cent per share. Earnings were reduced by 47 cents per share because of costs tied to repaying $25 billion in government bailout money.
Wells Fargo lost $3.02 billion, or 84 cents per share, during the final quarter of 2008 when the credit crisis peaked.
Quarterly revenue exceeded expectations. Wells Fargo generated $22.7 billion in revenue during the quarter. Analysts had been expecting revenue of $21.97 billion.
Shares rose 32 cents to $28.60 even as the broader market declined in morning trading.
Loughlin did say deterioration in the broader economy could hinder a recovery. That would likely affect Wells Fargo's profitability during the upcoming year. To be sure, loan-losses are still a major problem as people default on debt in droves.
Loans written off as being uncollectable nearly doubled from the year-ago period to $5.9 billion. However, the most recent quarter's results include the additional loans acquired when Wells Fargo bought Wachovia Corp. just over a year ago.
Even still, Wells Fargo was certainly more positive than bank executives elsewhere who wouldn't say anything beyond warning they were unsure if the economy was recovering.
Wells Fargo set aside $5.91 billion for loan losses during the quarter, a 30 percent decline from the same period a year earlier. Bank of America Corp., which also reported quarterly results Wednesday, actually increased its loan-loss reserves by 18 percent during the final three months of 2009.
Credit losses are lower than the bank projected when it acquired Wachovia. The acquisition of Charlotte, N.C.-based Wachovia added a big pool of risky mortgages that had been among the worst-performing types of loans during the recession. Wachovia's portfolio was considered riskier than Wells Fargo's at the time of the acquisition.
The bank said loan losses could peak even earlier than previously expected based on fourth quarter performance. Last quarter Wells Fargo said consumer loan losses would peak in the first half of 2010 and commercial loan defaults would peak during the second half of the year.
During the final quarter of 2009, Wells Fargo issued new stock as part of its repayment of government bailout money. The bank was one of the final large, national banks to pay back the $25 billion it received as part of the Troubled Asset Relief Program.
Wells Fargo was able to more than offset continued loan losses and the charges tied to repaying TARP through growing fee-based revenues, such as mortgage banking and credit and debit card fees.
For the full year, Wells Fargo reported a profit of $7.99 billion after paying preferred dividends, or $1.75 per share. It earned $2.37 billion, or 70 cents per share, in 2008.
Excluding dividends, Wells Fargo reported record yearly profit of $12.28 billion.
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