Despite loss, Wells maintains dividend -- and its stock soars
The San Francisco-based bank also said it had no plans to ask for more capital from the government.
Wells' shares, which had been among the biggest losers among bank stocks this year, have rocketed today amid a broad rally in financial shares. The stock was up $3.85, or 24%, to $20.04 at about 10:30 a.m. PST, trimming the year-to-date decline to 32%.
Wells' quarterly loss, its first since 2001, stemmed in part from a decision to boost reserves for loan losses by a total of $5.9 billion -- a move analysts at Keefe, Bruyette & Woods called a positive step to protect the bank against the deteriorating economy. For the year, the loan loss reserve grew by $8.1 billion.
Some analysts had feared that Wells' previous estimates of losses in Wachovia's loan portfolios, particularly on adjustable-rate mortgages inherited in Wachovia's takeover of Oakland's Golden West Financial, might have been too low.
Wells offered some reassurance on that front, saying that after analyzing Wachovia's holdings it was "comfortable in the aggregate with original credit assumptions." It also said it was sticking by its original projections for cost savings and eventual growth in earnings as a result of the takeover.
Wells said it now has $21.7 billion set aside to cover future Wells/Wachovia loan losses. The bank said those reserves would cover 12 months of estimated losses for all consumer loans and "at least" 24 months of estimated losses on all commercial and commercial real estate loans.
The KBW analysts said the biggest negative in Wells' report was the company's low level of so-called tangible common equity, one measure of a bank's capital cushion against losses. KBW calculated that Wells' tangible common equity now is just 2.63% of its assets, at a time when most analysts would like to see a ratio of at least 5%. . . .
A dividend cut would be one way to conserve capital. But Wells said its board decided to maintain the dividend at the current 34-cents-a-share quarterly rate, citing "our strong balance sheet and business momentum."
Many other major banks have slashed their dividends over the last six months, driving investors away. And the Obama administration has made clear that it will demand that banks seeking significant additional help from the government must reduce their dividends to near zero.
The U.S. Treasury injected $25 billion in capital into Wells last fall under the Troubled Asset Relief Program (TARP) -- even though the bank reportedly said it didn't want or need the money.
Wells said today that it had "no plans to ask for additional TARP capital."
The bank's quarterly results included one surprise: Wells said it took a pretax charge of $294 million "related to clients who incurred losses linked to the Madoff investment firm."
The bank itself didn't invest with Bernie Madoff, the New York money manager who is accused of running a $50-billion Ponzi scheme. Wells said the write-offs "were based solely on customer investments that were used to secure loans with Wells Fargo."
Spokeswoman Julia Tunis Bernard wouldn't elaborate when asked if Wells' customers had pledged their Madoff holdings as collateral to borrow money for additional investments.
-- E. Scott Reckard