Wells Fargo Bank is the bank best positioned in bad economic times with quarterly reports today boosting the value of its stock 32%.
Investors, who had anticipated poor earnings on more United States mortgage losses and bank failures, sent Wells Fargo shares soaring 32.8%, or $6.72, to close at $27.23 in trading in New York. Still, the stock is down 23.2% from its year-ago price.
“Wells Fargo continued to strengthen its franchise during the second quarter,” said President and CEO John Stumpf.
The bank earned $1.8 billion on record revenue, increasesd dividends 10% for stockholder and is the only financial institution in the United States to hold a AAA rating.
“We grew core deposits while reducing funding costs,” continued Stumpf.
“We achieved record crosssell results with our retail and commercial customers – a testament to our relationship based strategy and our 160,000 team members who serve our customers.
“We are open for business and getting lots of it. We also continued to benefit from opportunities in this environment to gain new business and customers through selective acquisitions.
“We maintained a strong balance sheet and, for the 21st consecutive year, increased our dividend.
“We’re still affected by the weak economy, but we believe we’re one of the best positioned in financial services to grow through this adversity and to build an even stronger company for our team members, customers, communities and shareholders.”
In the Bay Area Wells Fargo is the:
· Oldest and largest financial services company headquartered in California
· Voted among the Bay Area’s Best Places to Work
· #1 corporate giver among financial services companies
· #1 for small business lending
· #1 for home mortgages
· #1 for home mortgages to people of color in low-moderate income neighborhoods
· #1 for home equity
· #1 private employer in San Francisco County (employs more than 9,000 team members)
· One of the largest corporate purchasers of renewable energy in the U.S.
Wells Fargo has fared better than some peers in part because it had less exposure to the subprime mortgages, which have undermined the financial sector.
Ladenburg Thalman analyst Richard X. Bove said that he was impressed by Wells Fargo’s earnings despite coming in well below results in the past year. Bove added that Wells Fargo benefited from less competition as rival Washington Mutual is shrinking, Countrywide Financial (nyse: CFC – news – people ) and Golden West (nyse: GDW – news – people ) are gone and Bank of America (nyse: BAC – news – people ) is not competing as hard for mortgage business. He also likened Wells to “a ‘hot knife’ in the ‘butter’ known as the West Coast,” as community bankers across the region are suffering. “The gains are likely to continue,” he noted.
Wells Fargo tightened pricing and underwriting standards, and pulled back from third-party originations, or mortgage brokers, and the home equity lending market, said Walter O’Haire, senior analyst with Boston-based financial research and consulting firm Celent. This more retail-focused approach is serving the company well, O’Haire said, and it is growing its conventional government guaranteed mortgage business nicely.
“Mortgage applications came in at $100 billion, with some 44% for refinancing and 56% in purchase applications. All in all, the ‘slow and steady’ approach is paying off. The company should be able to continue growing its origination business and will be positioned very favorably once the overall housing market eventually stabilizes.”
The bank more than quadrupled the amount it set aside for credit losses to $3.0 billion from $720.0 million a year earlier. That provision included total charge-offs, or uncollectible debts, of $1.5 billion, and an increase in reserves for future losses of $1.5 billion. Wells Fargo’s total allowance for credit losses now stands at $7.5 billion, up from $6.0 billion at the end of the first quarter.
The bank said its new policy of writing off home equity loans where payments were more than 180 days late, rather than 120, resulted in it deferring $265.0 million in charge-offs.
Wells Fargo nevertheless increased its quarterly dividend to 34 cents per share from 31 cents, bucking the trend among many rivals that are lowering their payouts.
The mortgage lending climate remained tough, but Wells Fargo managed to keep total retail mortgage originations at $31.0 billion, the same as last year, despite tightening its pricing and underwriting standards.
“We were able to lend more to current customers where we believed it was prudent and properly priced,” said CEO Stumpf. He added that the company gained more business and customers through acquisitions.
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