Earnings at Wells Fargo Up 8% in Fourth Quarter

Wells Fargo & Co.’s fourth-quarter profit rose 8% as the nation’s fifth-largest bank adjusted to slacker demand for home mortgages and a recent change in federal bankruptcy law that drove up its consumer loan losses.

The San Francisco-based company said Tuesday that it earned $1.93 billion, or $1.14 a share, in the October-to-December period, compared with net income of $1.79 billion, or $1.04, a year earlier.

That was a penny below the average estimate of analysts polled by Thomson Financial.

Revenue totaled $8.49 billion, a 4% increase from $8.17 billion a year earlier and in line with analysts’ estimates.

The company’s shares fell 65 cents to $62.60.

Wells Fargo would have exceeded analyst forecasts had it not sold $11 billion in debt securities during the fourth quarter in a move designed to strengthen its finances over the long haul. That decision resulted in a loss of $124 million, lowering Wells Fargo’s earnings by about 5 cents a share, Chief Financial Officer Howard Atkins said.

A slowdown in the home mortgage market and an uptick in consumer loan losses also weighed on the bank during the quarter.

As long-term interest rates have crept up in recent months, fewer people have been buying homes or seeking to refinance their existing mortgages.

Those conditions are generating lower fees for major mortgage lenders such as Wells Fargo that have profited from the booming real estate market of recent years.

Wells Fargo’s fourth-quarter revenue from its home mortgage division totaled $1.15 billion, a 13% decrease from the comparable 2004 period. The bank tried to offset that erosion by trimming its expenses by 13%, but its mortgage profit still declined, Atkins said.

The bank ended 2005 with about $50 billion in pending mortgage applications, down from a peak of $73 billion in June.

A new bankruptcy law that took effect in October also clipped Wells Fargo’s earnings. Many of its customers filed for bankruptcy protection just before the law took effect because it is more difficult to wipe out debts under the new rules.

That surge in filings saddled Wells Fargo with $171 million in consumer loan losses, depressing its quarterly earnings by 7 cents a share. The bank had warned investors about the loan losses two months ago.

Like many other banks, Wells Fargo is counting on the new bankruptcy law to reduce its future loan losses.

For all of 2005, Wells Fargo earned $7.67 billion, or $4.50 a share, on revenue of $32.9 billion. In 2004, the bank earned $7.01 billion, or $4.09, on revenue of $30.1 billion.

In other bank earnings reports Tuesday:

* Minneapolis-based U.S. Bancorp, the nation’s No. 6 bank, said fourth-quarter net income rose to $1.14 billion, or 62 cents a share, from $1.06 billion, or 56 cents. Revenue rose 3% to $3.33 billion. Analysts had expected profit of 62 cents a share on revenue of $3.38 billion. U.S. Bancorp shares fell 56 cents to $30.03.

* Cleveland-based National City Corp., the No. 8 bank, said fourth-quarter net income fell 59% to $398 million, or 64 cents a share, from $960 million, or $1.46. Year-earlier results included a $477-million gain from an asset sale. National City shares rose 89 cents to $34.86.

*

Reuters was used in compiling this report.