Wells Fargo & Co., whose purchase of Wachovia Corp. will create the nation's biggest bank branch network, said Wednesday profit topped analysts' estimates as the company picked up market share from collapsing rivals.
Net income for the third quarter fell 24 percent to $1.64billion, or 49 cents a share, from $2.17 billion, or 64 cents, a year earlier, the San Francisco-based company said. Analysts expected profit of 43 cents a share.
The failure of IndyMac Bancorp in July and Seattle-based Washington Mutual Inc. last month allowed Wells Fargo, whose biggest shareholder is Warren Buffett's Berkshire Hathaway Inc., to win mortgage and banking customers.
Chief executive officer John Stumpf kept Wells Fargo profitable amid record U.S. home loan defaults, allowing him to acquire Wachovia and double the bank's deposit base.
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“They've been able to take advantage of weaker competitors,” Hank Smith, who helps oversee $6.5 billion as chief investment officer of Haverford Trust Co. in Radnor, Pa., told Bloomberg TV. “The underwriting standards have always been better.”
Wells Fargo shares fell 17 cents, or 0.5 percent, to $32.50 as the 24-company KBW Bank Index dropped 7.2 percent and the Standard & Poor's 500 Index tumbled 9 percent in its biggest drop since the crash of Oct. 19, 1987. Wells Fargo has gained 10 percent this year, the biggest advance in the KBW index after BB&T Corp., which dropped 35 percent.
Wells Fargo is among nine major banks slated to receive cash infusions from the Bush administration as part of the U.S. Treasury's plan to spend $700 billion to unfreeze credit markets amid the worst financial crisis since the Great Depression. Wells Fargo will get $25 billion of the $125 billion being doled out to the banks.
“All of these actions are collectively beginning to reduce interest rates as well as unclog the system,” Wells Fargo Chief Financial Officer Howard Atkins said. “Banks are beginning to lend to each other again.”
On his victory tour in Charlotte, CEO Stumpf said that regulators “are doing a lot of the right things.”
But he added that his bank didn't need the $25 billion injection from the government. “We already were strong going into this,” Stumpf said. “We didn't ask for the help.”
Asked if he saw the added capital as an opportunity to make more acquisitions, Stumpf replied, “We're not going to be buying more banks, we're already at the (deposit) cap, the 10 percent cap, and frankly our hands are full.”
JPMorgan Chase & Co., which also stands to receive $25 billion from the government, said it eked out a third-quarter profit of $527 million as the takeover of Washington Mutual Inc. cushioned about $5.8 billion of writedowns, losses and credit provisions. JPMorgan, which reported an 84 percent drop in quarterly profit, said it expects loan losses will continue to climb.
Revenue at Wells Fargo rose 5.4 percent to $10.4 billion from a year earlier as the company bolstered credit-card, insurance and wealth-management units. The bank's allowance for credit losses doubled to $8 billion from a year earlier. Charge-offs, the cost of uncollectible loans, increased to 2 percent of average loan totals from 1 percent a year earlier and 1.6 percent at the end of June. The bank wrote off $646million for investments in Fannie Mae, Freddie Mac and Lehman Brothers Holdings Inc. Loans that are 90 days or more past due climbed 16 percent.
“What we're seeing is more pressure on the consumer,” said Jennifer Thompson, an analyst at Portales Partners in New York, who rates the shares “hold” and doesn't hold them. Late loans represent a “feeder bucket for the nonperformers.”