Wednesday, July 22, 2009

Credit Worries Shadow Wells Fargo as Earnings Jump

Voltron says: Wall Street Journal calls out Wells Fargo on it's lies.

Wells Fargo & Co.'s second-quarter earnings soared 81%, hitting a new company record, amid the bank's acquisition of Wachovia.

But shares fell 6.9% premarket despite the company's results topping analysts' expectations as loan troubles continued to mount.

Larger banks like Wells Fargo have enjoyed a lift from the recent mini-boom in mortgage refinancing, which is a major business for the San Francisco bank. But rising delinquencies and credit woes continued.

Analysts have expressed concern about the risk Wells Fargo assumed with its purchase of troubled Wachovia, which left it heavily exposed to the rapidly weakening commercial real estate sector. Meanwhile, option adjustable-rate mortgages have been generating proportionally more delinquencies and foreclosures than subprime mortgages in recent months, which could mean higher-than-expected losses for some of the bigger banks.

Chief Executive Jon Stumpf said Wednesday the company's top priority is to integrate Wachovia as smoothly as possible, adding that the integration is on track. He added in November, banks in Colorado will convert Wachovia branches to Wells Fargo ones.

Investors must rely on management to volunteer information about the integration, because the company has said it again won't hold a conference call.

Wells Fargo posted income of $3.17 billion, or 57 cents a share, up from $1.75 billion, or 53 cents a share, a year earlier. The company had 36% more shares outstanding in the most recent period amid the takeover. Revenue nearly doubled to $22.5 billion from $11.46 billion, with Wachovia making up 39% of the total.

Analysts polled by Thomson Reuters expected earnings of 34 cents on revenue of $20.49 billion.

Credit-loss provisions were $5.09 billion, up 69% from a year earlier and 11% from the prior quarter. Net charge-offs rose to 2.1% of average loans from 1.54% in the prior quarter. Nonperforming assets grew to 2.2% from 1.5% in the prior quarter.

The bank's tangible common equity ratio, which measures how much of a bank's hard assets its shareholders actually own, rose to 5.2% from 3.8% in the prior quarter

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