Wells Fargo Posts 12% Rise in Profit
Wells Fargo & Co. reported 12% higher second-quarter net income Tuesday, along with a long-awaited increase in commercial lending. But hefty expenses for repurchasing corporate debt and reshuffling its mortgage holdings, along with lower earnings on subprime lending, caused the giant bank to miss Wall Street’s profit expectations.
UnionBanCal Corp., the second-largest commercial bank based in California, said its net income rose nearly 60%, with higher income from fees as well as fewer troubled loans and an uptick in commercial loans.
Golden West Financial Corp., parent of California’s largest thrift, World Savings Bank, said its second-quarter profit rose 16% as demand increased for adjustable-rate mortgages, its specialty.
Analysts are watching to see if commercial and industrial lending picks up enough to offset expected declines this year in mortgage earnings, a consideration for Wells, the nation’s No. 1 originator of home loans.
Richard Kovacevich, Wells’ chief executive, has insisted that increases in other businesses would offset potential declines in home lending at San Francisco-based Wells, the largest bank based in California and the No. 5 bank nationally.
Hoefer & Arnett analyst Richard X. Bove, who earlier this year cut his rating on Wells to “neutral,” said most of the company’s earnings in the latest quarter came from another boom quarter for mortgages, spurred by a dip in interest rates earlier this year.
A 6% increase in commercial loans from a year earlier resulted from Wells’ cutting rates, said Bove, who added that he saw “an honest-to-God price war” shaping up as banks focused on commercial lending.
Wells’ chief financial officer, Howard Atkins, said the increase in commercial loans -- the first in nine quarters for Wells -- wasn’t enough to be called a trend. “Whether that continues remains to be seen,” he said in an interview.
Wells Fargo earned $1.71 billion, or $1 a share, up from $1.53 billion, or 90 cents a share, a year earlier. The average estimate of analysts polled by Thomson First Call was $1.04 a share, and Wells shares gave up 39 cents on the New York Stock Exchange to $58.06.
San Francisco-based UnionBanCal, parent of Union Bank of California, said net income rose to $231.1 million, or $1.54 a share, from $144.8 million, or 96 cents, a year earlier.
“Business momentum continued to be very solid,” said UnionBanCal Chief Executive Norimichi Kanari. He attributed the profit growth to higher income from banking fees, fewer customers missing loan payments and a $57.4-million gain on the sale of a credit card business.
The results were announced after the close of trading on the New York Stock Exchange, where UnionBanCal shares rose 50 cents to $58.02.
Oakland-based Golden West said net income rose to $316.7 million, or $2.04 a share, from $272.5 million, or $1.76 a share, in the second quarter of 2003.
Its chief executive, Marion Sandler, noted that interest rates on adjustable-rate home loans remained low during the second quarter while the cost of fixed-rate loans jumped. “Our lending team took advantage of this favorable environment and produced record new volume,” she said.
Golden West beat Wall Street projections by 4 cents a share, but its shares were down 93 cents to $104.99 on the New York Stock Exchange after the federal government said U.S. housing starts declined in June.
