Wells Fargo says it’s ‘turned the corner’ after first-quarter earnings fall 16%
Wells Fargo & Co.’s first-quarter earnings fell 16% as it worked through troubles with home loans and commercial real estate, but the bank said it had “turned the corner” on lending problems, with fewer new delinquencies across the board.
“The leading indicators in the credit portfolio are pointing full-speed ahead,” the bank’s chief financial officer, Howard Atkins, said in an interview Wednesday after the results were released.
Wells Fargo’s profit in the first three months of the year was $2.6 billion, or 45 cents a share, down from $3.1 billion, or 56 cents, in the first quarter of 2009. Despite a shrinking number of loans on its books, revenue rose to $21.5 billion from $21 billion, reflecting higher profit margins on lending and increased income from fees.
Wells’ charge-offs, the final step for dud loans, were about the same as in the fourth quarter of 2009 but lower than expected, said Keefe, Bruyette & Woods bank analyst Frederick Cannon.
The volume of loans in or near default continued to increase. Such loans, known as nonperforming assets, increased to 3.49% of total assets at the end of the first quarter from 1.25% a year earlier and 3.12% at the end of 2009.
Some analysts who are bearish on Wells Fargo’s stock say the rising numbers of overdue loans and declining loan-loss provisions and charge-offs show the bank is doing less to face up to problems than other big banks.
Loss provisions cause an immediate hit to net income, so keeping them low protects earnings, at least in the short-term. “But that’s not sustainable,” said Michael Williams, director of research at Gradient Analytics, an independent research firm that recently advised its clients to avoid investing in Wells.
Williams predicts Wells will have to take large charges at some point to deal with greater than expected problems with commercial real estate loans it took on when it acquired troubled Wachovia Corp. in 2008.
Atkins said Wells Fargo already had written down the value of the Wachovia loans on its books to levels it was comfortable with. He said the company was taking fewer hits than other banks because it began reducing risks and dealing with loan problems three years ago, before others did.
Some borrowers complain there is another reason why so many distressed loans remain on Wells Fargo’s books, saying the bank has dragged its feet on completing loan modifications.
Dave Smith and his wife Kathy, of Laguna Niguel, both lost their jobs in January 2009. He said he found a new job two months later and received a trial modification lowering the payment on his Wells Fargo first mortgage last September.
Smith, a financial executive, said he had made the lower payment for eight straight months and repeatedly called the bank asking why it had not been made permanent.
“The answer is always the same — someone will get back to you in two or three weeks,” he said. “I have never been contacted except to ask if my intent is to continue to live at my residence.”
Atkins said he couldn’t comment on individual customers. He added that the bank had 13,000 employees working on loan modifications “as hard as we can.”
