No happy new year at Wells Fargo, as its stock dives 52%

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Few bank stocks showed the strength that Wells Fargo & Co. did in 2008.

This year, few are faring worse than Wells.

Shares of the San Francisco-based giant on Tuesday plummeted $4.45, or 24%, to $14.23, the lowest closing price since 1997.

The stock is down 52% just since Dec. 31, compared with a 43% drop in the average U.S. big bank issue.

That’s painful for a lot of small investors in the stock -- and at least unpleasant for billionaire Warren Buffett, who is Wells’ largest shareholder, with a 6.9% stake.

The selling accelerated Tuesday after Paul Miller, a veteran bank industry analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va., predicted that Wells would cut its dividend by July to bolster its balance sheet.

Plenty of banks have hacked their dividend payments in the last year, but Wells -- long revered as one of the nation’s best-run financial institutions -- was supposed to be immune.

Not so, Miller contends. He figures the bank this year will have to set aside $2.5 billion more than he had previously estimated for loan losses, in part because of continued bleeding on mortgage and other loans at Wachovia Corp., which Wells swallowed Jan. 1 in a deal that took its franchise nationwide.

That higher loan-loss provision will reduce Wells’ earnings to $1.10 a share this year, Miller said, down from his previous estimate of $1.50.

Miller is more pessimistic than most analysts; their median estimate for 2009 is for Wells to earn $1.70 a share. But if Miller’s lower estimate is on target, Wells will earn less than its current $1.36-a-share annual dividend.

What’s more, he believes that Wells Chief Executive John Stumpf will want to boost the bank’s so-called Tier 1 capital as a percentage of assets, now 9.5%, to strengthen Wells in a still-awful economy. Cutting the dividend would be one way to conserve capital.

The company declined to respond to Miller’s report, saying it doesn’t comment on analysts’ views.

Investors had given Wells the benefit of the doubt in 2008, even though Stumpf was taking a big risk by acquiring loss-ridden Wachovia in a deal that broke up a planned Wachovia/Citigroup marriage. Wells’ shares fell just 2.3% for the year, compared with a 50% plunge in the average bank issue.

Now, some Wells shareholders must be wishing the bank had left Wachovia at Citi’s altar.

-- Tom Petruno