Wells Fargo Tops Analysts’ Expectations

Wells Fargo (WFC) reported a $2.82 billion profit in the fourth quarter, surprising analysts who had projected a loss of 1 cent a share on revenue of $21.97 billion.

The San Francisco banking giant earned 8 cents a share, in the last three months of 2009, compared to a loss of 84 cents a share, or $2.73 billion, a year earlier. Its fourth quarter earnings were reduced by 47 cents per share tied to the TARP-related preferred stock dividend payments.

Wells Fargo, which absorbed Wachovia during the height of the financial crisis a year ago, said its Q4 earnings of $2.8 billion contributed to a record $12.3 billion in net income for the full year. Revenue continued to build during the quarter, prompting a quarterly record of $22.7 billion. The 4th quarter 4% revenue increase led to a pre-tax pre-provision profit of nearly $10 billion despite $861 million of merger-related expenses in the last three months of 2009. Noninterest income climbed to $11.2 billion in Q4 from $2.8 billion, excluding Wachovia, a year earlier.

“The Wells Fargo model has been built to outperform our peers over time and through cycles. Clearly we have done just that again in 2009 and believe that this very same model and execution discipline will continue to outperform the industry in the years and cycles ahead,” CEO John Stumpf said in a statement.

It’s clear however, Wells Fargo is still hurting from the economy and Wachovia integration. The bank said its loan losses increased to $5.9 billion in Q4 from $3 billion, y/y basis, driven by residential and commercial mortgage losses. Wells pointed it out however, that it set aside just $5.9 billion against loan losses in the quarter, compared with $8.4 billion a year earlier. The bank also said it lowered its cumulative merger expense estimate to $5 billion, $3 billion less than the originally assumed.

Chief Financial Officer Howard Atkins said losses from Wachovia integration are “tracking better than originally estimated at the time of the merger.”

Meanwhile, net charge-offs rose 2.71% to $5.4 billion, compared with third quarter net charge-offs of $5.1 billion, or 2.50% of average loans. Almost all of the increase in charge-offs was in commercial and consumer real estate.

Last month Wells Fargo repaid a $25 billion government bailout it received in October 2008 under the Troubled Asset Relief Program.

WFC shares shed $1.38, or 39 cents, to $27.89 in recent action.

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