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Wells Fargo beats Wall Street's earnings expectations

July 21, 2010 |  6:48 am

Reporting weaker demand for loans but improved credit quality, Wells Fargo & Co. said its second-quarter profit declined 3% -- a better-than-expected result that sent stock in the giant San Francisco bank higher.

Wells Fargo said it earned $3.06 billion, or 55 cents per share, during the second quarter, compared with $3.17 billion, 57 cents a share, in the same period of 2009.

Reporting early Wednesday, the bank said its revenue fell from$22.5 billion a year earlier to $21.4 billion, a 5% decline that Wells attributed to decreasing demand for loans and lower results from its hedging against its mortgage servicing operations.

Compared with the first quarter, however, revenue increased in businesses as diverse as commercial banking, investment banking, wealth management, asset-based lending, auto-dealer services, debit cards, and international money transfers, Wells said.

A year and a half after its acquisition of Wachovia Corp., which was near collapse at the peak of the financial crisis, Wells said its integration of the Charlotte, N.C., bank was on track, with financial results exceeding its initial projections.

Wells Fargo also said its loan losses declined by 16% during the quarter, to $4.49 billion from $5.33 billion in the first quarter. Credit quality improved in stressed-out consumer businesses such as home-equity lending and credit cards, and commercial real estate losses were down 10% from the prior quarter, Wells said.

The company also reported decreasing losses on its portfolio of Pick-a-Pay mortgages, the tricky adjustable-rate loan business that Wachovia had taken on when it acquired World Savings parent Golden West Financial of Oakland. The loans allowed borrowers to pay so little that their balances went up instead of down -- a formula for distress as housing prices plummeted in California and the nation.

Losses also declined at Wells Fargo Financial, the storefront subprime-lending operation that Wells Fargo was  closing down. Its results included $137 million of severance costs related to the shutdown.
The average estimate of 27 analysts following the company had been for 48 cents a share in earnings, and Wells Fargo shares were up $1.34, or 5.2%, at $27.35 in pre-market trading an hour after the earnings were announced.

-- E. Scott Reckard