Wells Fargo profits better than expected
The bank reports that net income declined 25% but earnings beat forecasts; says merger with Wachovia on track to close by year's end.
NEW YORK (CNNMoney.com) -- Wells Fargo & Co. said Wednesday its third-quarter net income declined due to investment write-downs and higher credit losses, but the results were much better than expected.
San Francisco-based Wells Fargo (WFC, Fortune 500) reported net income of $1.64 billion, or 49 cents a share, down 25% from a profit of $2.17 billion, or 64 cents a share in the same period a year ago. Analysts expected earnings of 41 cents a share, according to Thomson Reuters.
Revenue was $10.38 billion, lower than estimates of $10.96 billion, but up 5% from $9.85 billion in the year-ago quarter.
The bank said results were hurt by write-downs for investments in Fannie Mae, Freddie Mac and Lehman Brothers. Wells Fargo also raised its credit reserves by an additional $500 million, or 10 cents a share, bringing the total allowance for credit losses to $8 billion, chief financial officer Howard Atkins said in a statement.
The news comes on the heels of a better-than-expected quarterly report from JPMorgan Chase (JPM, Fortune 500). The two banks have been widely acknowledged as being among the best-run during the credit crisis and neither bank has reported a loss during the past three quarters.
Still, both financial institutions are slated to receive part of a $125-billion emergency injection of capital from the federal government in an attempt to unfreeze frozen credit markets. Regulators believe that the move will encourage banks to lend to one another and increase access to credit for both businesses and consumers. Wells Fargo will get $25 billion from the Treasury Department.
"We look forward with great anticipation and confidence to completing our merger with Wachovia Corporation by year end. The union of our two companies will provide compelling value for all our stakeholders," Wells Fargo CEO John Stumpf said in a statement.
In a message on Wells Fargo's Web site, Stumpf assured customers that the merger would mean "business as usual," despite the "dramatic changes taking place in the financial services industry."
"I think everybody in America has concerns about their banking," said analyst Frederick Cannon of Keefe, Bruyette & Woods. "Reassuring customers in light of a large merger is not unusual."
On Sunday, the Federal Reserve approved the $11.7-billion deal but it is still subject to the approval of Wachovia shareholders. No date has been set for that vote.
In the last month alone, the nation's banking industry has undergone a dramatic facelift, including unprecedented consolidation that has taken place at breakneck speed. Bank of America's (BAC, Fortune 500) agreed to acquire Merrill Lynch (MER, Fortune 500) and JPMorgan Chase scooped up savings and loan Washington Mutual after it failed.