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Wells Fargo second-quarter profit beats expectations

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Wells Fargo & Co. said its second-quarter profit declined 3% from the year-earlier period, but its results well exceeded Wall Street expectations and increasing demand gave it a brighter forecast.

The giant San Francisco bank earned $3.1 billion, or 55 cents a share, compared with $3.2 billion, or 57 cents a share, for last year’s second quarter. Revenue fell 5% to $21.4 billion from $22.5 billion on falling demand for consumer loans.

The better-than-expected results — Wall Street’s consensus was 48 cents a share — were released before trading began Wednesday. Shares quickly rose nearly 6% to $27.60 but closed with a gain of 15 cents at $26.06.

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Wells Fargo’s report came hours before President Obama signed into law the sweeping overhaul of financial regulations. The measure, designed to avoid another economic catastrophe that sent the nation into the worst recession since the Great Depression, included the creation of a consumer agency to write and enforce rules protecting customers from unscrupulous banking deals.

John Stumpf, Wells Fargo’s chief executive, wouldn’t predict what effect the law would have on his bank, the nation’s largest home lender, but seemed unconcerned about the new agency. He said “we’ll be able to adapt” to tighter regulation and avowed that the bank has “always been strongly aligned with the interests of consumers.”

The bank’s view of the legislation contrasted sharply with that of competitor Bank of America Corp., which said last week that its revenue would decline by billions of dollars as a result of the new law and the rules that will be written to implement it.

In its financial report, Wells Fargo said loans on its books totaled $766 billion at the end of June, down from $822 billion at the end of June last year.

However, in a positive indicator for the economy, Wells Fargo said it was beginning to see increased demand on the commercial side of its operations from the first three months this year. 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.

The company also said that, 18 months after acquiring troubled Wachovia Corp., it was on track in integrating the two businesses and that financial results were exceeding its initial projections.

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Wells Fargo said it was steadily reducing the amount of uncollectible loans on its books, cutting the total 16% to $4.5 billion from $5.3 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.

The company also said it was reducing its losses on a $97-billion portfolio of risky adjustable-rate mortgages that it inherited from Wachovia and its own Wells Fargo Financial, the storefront subprime lending operation that the bank is closing.

scott.reckard@latimes.com

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