4 Banks Report Higher Profits
Wells Fargo & Co. reported 10% higher fourth-quarter earnings Tuesday, thanks to gains in consumer lending and signs of a long-awaited pickup in small-business loan demand. The San Francisco bank also reported a smaller than expected drop in mortgage revenue and a sharp decline in overdue loans.
Profit also rose at Citigroup Inc., the world’s largest financial services company, on higher fees from credit cards and money management and a decline in loan losses. Major regional banks U.S. Bancorp and Bank One Corp. also reported higher net income.
Wells Fargo, the fourth-largest U.S. bank as ranked by assets and the largest bank based in California, said its quarterly net income rose to $1.62 billion, or 95 cents a share, from $1.47 billion, or 86 cents, a year earlier. Revenue rose 12%, to $7.44 billion from $6.66 billion, despite a decline of 0.44 percentage point in the bank’s lending margin, the difference between its cost of funds and its loan rates.
For the year, Wells Fargo’s profit rose 9% to $6.2 billion, or $3.65 a share, from $5.7 billion, or $3.32, in 2002. Revenue for the year climbed 13% to $28.4 billion from $25.2 billion the previous year.
Wells Fargo surprised some analysts by reporting only an 8% decline in mortgage-banking revenue after a one-time accounting adjustment, despite the sharp decline in refinancing as interest rates rose in the fourth quarter. Joseph K. Morford, managing director of RBC Capital Markets in San Francisco, said mortgage revenue declined 50% or more at several banks he follows.
In an interview, Wells Fargo Chief Financial Officer Howard Atkins credited the bank’s mortgage-lending system, which gears up with temporary workers when activity peaks, then cuts costs and collects higher mortgage-processing fees when refinancings slow down and consumers stop paying off old loans. The company cut mortgage-banking expenses by $181 million during the fourth quarter, Morford said, reducing temporary workers from 10,000 at the peak of the refinancing boom to about 2,500.
Wells Fargo recorded better results on credit cards, home-equity loans and other consumer businesses and saw “early signs of increases in demand for commercial loans,” Atkins said. He noted that Wells was second in small-business lending only to Bank of America Corp.
The bank said seriously overdue loans fell by 25% as a percentage of total loans to 0.66% at the end of last year, compared with 0.88% at the end of 2002.
Wells Fargo’s earnings were in line with analysts’ estimates. Its shares Tuesday rose 16 cents to $57.35 on the New York Stock Exchange.
Citigroup, which paid $5.4 billion in 2002 for California Federal Bank parent Golden State Bancorp, earned $4.76 billion in the fourth quarter, or 91 cents a share, almost double the $2.43 billion, or 47 cents, it reported a year earlier.
Citigroup shares closed down 21 cents at $49.29 on the NYSE.
Bank One, which is being acquired for $58 billion by J.P. Morgan Chase & Co., reported quarterly profit of $978 million, or 87 cents a share, up from $842 million, or 72 cents, a year earlier.
Regulators are scrutinizing the Chicago bank’s trading relationship with Canary Capital Partners, a hedge fund, but its loan losses declined and its consumer business was strong, analysts said.
Bank One shares fell 13 cents to $50.87 on the NYSE.
Minneapolis-based U.S. Bancorp reported net income of $977 million, or 50 cents a share, up from $819.7 million, or 43 cents, in the same period in 2002. Its allowance for loan losses declined 2.2%, and overall loans on its books rose by 1.8%, although commercial loans fell down sharply. Its shares slipped 30 cents to $28.20 on the NYSE.
