Wells Fargo’s Net Surges, but Bad Loans Rise : Banking: Quarterly earnings soar to $82 million from $14 million a year ago. Other institutions also report jumps.
Wells Fargo & Co., the San Francisco-based bank that bet heavily on what has turned into a moribund commercial real estate market in California, disclosed a troublesome rise in problem loans Tuesday even as its second-quarter profit jumped fivefold from a year ago.
Elsewhere, several of the nation’s largest financial institutions, including Citicorp, Chemical Banking and the parent of Home Savings of America, reported higher second-quarter earnings even though the weak economy continued to increase their problem loans.
Wells Fargo earned $82 million in the three months ended June 30, compared to a lackluster $14 million in 1991’s second quarter, when Wells Fargo also was hurt by problem real estate loans.
But the increase in profit masked troubles in Wells Fargo’s loan portfolio. Its non-performing loans--those in which interest is not accruing or being paid--jumped 16% to $2.88 billion on June 30 from $2.49 billion on March 31.
Wells Fargo also set aside a steep $300 million in the second quarter for problem loans, many in commercial real estate. Although down from $350 million set aside in the year-earlier quarter, the figure was up sharply from the $215 million set aside in the first quarter.
“Economic conditions, particularly in California, are still tenuous,” said Chairman Carl E. Reichardt. “Loan demand remains weak and asset quality is slow to recover.”
The results disappointed analysts, who had been encouraged earlier this year by first-quarter results indicating that Wells Fargo’s problems might be easing. The bank’s stock took a pounding, falling $2.50 to $70.75 a share Tuesday on the New York Stock Exchange.
“Wells Fargo’s earnings and fundamentals are like a yo-yo from quarter to quarter,” said Thaddeus W. Paulszek, analyst with Kidder, Peabody & Co.&
The firm’s real estate loans are now under the scrutiny of the Office of the Comptroller of the Currency. The continuing audit is expected to cloud Wells Fargo’s outlook for the next several months.
Wells Fargo’s results stand in sharp contrast to BankAmerica’s, released Monday, which were surprisingly strong given California’s soft economy. BankAmerica reported $240 million in second-quarter earnings.
Analysts expect that First Interstate Bancorp’s second-quarter results, to be released Thursday, will show continued progress in the bank’s turnaround, although no one expects robust profit yet.
Other banks and thrifts reporting results included:
* The parent company of Home Savings of America, H. F. Ahmanson & Co., said its second-quarter earnings rose to $67.1 million from $60.8 million in 1991. Richard H. Deihl, the Los Angeles-based company’s chairman, called Ahmanson’s performance solid despite the weak national and California economies.
Though traditionally among the healthiest of the country’s large savings and loans, Ahmanson noted that its problem loans are on the rise. It added $63.5 million to its reserve for loan losses, bringing the total to nearly $392 million as of June 30. Its assets totaled $46.8 billion.
Deihl said that while Ahmanson’s non-performing loans are high in historic terms, its delinquencies have leveled off and it is working to quickly sell its foreclosed real estate.
* Union Bank earned $33.2 million in the second quarter, down from $36.5 million a year earlier. The San Francisco-based institution, controlled by Bank of Tokyo, said progress had been made in reducing expenses.
* New York’s Citicorp said it earned $171 million in the second quarter, despite setting aside $1 billion for possible loan losses. That compares to a scant $11 million in earnings in the second quarter a year ago caused by problem loans.
“We are where we had expected to be,” said Chairman John S. Reed. “The results are further evidence that we are on track to meeting our plan objectives.”
For the six months, Citicorp earned $354 million, compared to $104 million in the first six months of 1991.
* Chemical Banking Corp., the New York giant formed at the start of this year by the merger of Chemical Bank and Manufacturers Hanover, earned $240 million, up 30% from a year earlier. The bank said the “strong results in most of our businesses” were offset by a weak economy that resulted in $345 million having to be set aside to cover problem loans.
“However, the provision is down from its peak in the 1992 first quarter, and we expect it to decline further during the remainder of the year,” said Chairman John F. McGillicuddy. He added that he expects the bank to exceed the cost savings expected as a result of the merger.
* Among major regional banks, Banc One in Columbus, Ohio, reported another strong quarter as its profit jumped 30% to $181.3 million in the second quarter. In Pittsburgh, Mellon Bank’s earnings rose 26% to $176 million as its loan problems eased.
