Wells Fargo, one of the nation’s biggest banks and the largest consumer lender, said Wednesday that its fourth-quarter earnings rose 21 percent, helped by an improving loan portfolio and withdrawals from its capital reserves.

The bank, which is based in San Francisco, earned $3.4 billion, or 61 cents a share, in the fourth quarter, up from $2.8 billion, or 8 cents a share, in the year-earlier period, matching analysts’ forecasts. For the year, Wells Fargo reported net income of $12.36 billion in 2010, compared with $12.28 billion in 2009.
The bank’s full-year revenue fell to $85 billion, however, from $88.7 billion in 2009, as new federal regulations limited the overdraft fees that banks can charge on checking accounts.
Still, compared with the third quarter, the bank generated revenue growth in roughly two-thirds of its businesses.
“As the U.S. economy showed continued signs of improvement, our diversified model continued to perform for our stakeholders, as demonstrated by growth in loans and deposits, solid capital levels and improving credit quality,” John G. Stumpf, the bank’s chairman and chief executive, said in a statement.
Despite its heavy hand in the lending industry, which has been hit by losses for three years,

Wells Fargo has quietly emerged from the financial crisis as one of the nation’s strongest banks.
The report from Wells is an important step for the bank as it looks to increase its dividend, which has been stuck at 5 cents for nearly two years.
Wells Fargo Press Release
When the financial crisis struck, Wells, JPMorgan Chase and other industry giants cut dividends as they moved to bolster their capital. Now, two years later, banks are eager to give money back to shareholders — if the government will let them. The Federal Reserve must first complete a second round of bank stress tests, whose results are expected in March.
JPMorgan, which last week reported a $17 billion profit for 2010, has said it hopes to raise its dividend as much as a dollar in the coming months.
Wells Fargo has been more coy about its plans. Mr. Stumpf, in a conference call with investors, said he was eager to raise the dividend.
But Brian Foran, a senior bank analyst with Nomura Securities International, noted, “They historically have been cagey about saying anything before they know it.”
The bank’s dividend outlook has improved on the back of its lending operation.
Wells Fargo picked up new borrowers in the fourth quarter, particularly businesses, and it released $850 million from its reserves, thanks to the improving loan portfolio.
The bank’s provision for credit losses was cut nearly in half, to $2.99 billion in the fourth quarter from $5.91 billion a year earlier.
Shares of Wells Fargo fell 68 cents, or 2.1 percent, on Wednesday, closing at $31.81.
Although the bank’s mortgage shop reported a 19 percent drop in income from 2009, it originated $128 billion in home mortgages in the fourth quarter, up from $94 billion in the fourth quarter of 2009.
“You can see the momentum building as economic activity is returning,” said Marty Mosby, a managing director at Guggenheim Partners.
Yet Wells Fargo still faces problems surrounding its mortgage portfolio.
On Jan. 7, the highest state court in Massachusetts ruled that Wells Fargo and US Bancorp had wrongly foreclosed on two homes, because they could not prove they owned the mortgages.
Regulators in all 50 states have begun investigations into whether hundreds of thousands of foreclosures made in recent years were invalid.
Some banks temporarily suspended foreclosures last year during the controversy.
Wells Fargo officials say they have largely avoided the documentation problems and have decided not to halt foreclosures.
“At the end of the day, the litigation will be less of an impact on Wells Fargo than people fear,” said Lawrence Remmel, a partner at the law firm Pryor Cashman, where he leads the firm’s banking and financial institutions group.
Wells Fargo has also moved to distance itself from litigation over soured loans that banks securitized and sold to investors.
Fannie Mae and Freddie Mac, the government-controlled mortgage finance companies, are demanding that Wells Fargo and other big banks buy back loans sold at the height of the mortgage bubble.
In the fourth quarter, the bank recorded a $464 million provision for future mortgage repurchases, up from $370 million in third quarter.
But the bank’s chief financial officer, Howard I. Atkins, said Wednesday that Wells Fargo did not plan to settle its dispute with Fannie and Freddie. Mr. Atkins said the bank’s mortgage securities were of higher quality than those generated by its competitors.
“This is a diminishing issue, not an increasing issue,” Mr. Atkins said in an interview.
Eric Dash contributed reporting.
By Ben Protess
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