DealBook: Dodging Banking Woes, Wells Fargo Posts 20% Jump in Profit

7:46 p.m. | Updated

Wells Fargo is somewhat unusual among big banks — it continues to produce profit gains.

The bank, the nation’s largest consumer lender, said on Tuesday that its fourth-quarter earnings rose 20 percent, an indication the bank was coping with a lackluster economy better than many of its Wall Street competitors.

Wells Fargo reported earnings of $4.1 billion, or 73 cents a share, in the quarter as its loan portfolio showed signs of improving and it largely dodged the pitfalls of the volatile investment banking business, which has burned its competitors.

The figures — padded somewhat by the bank’s decision to set aside $600 million less in reserves to cover soured loans — narrowly beat the 72 cents a share that analysts were forecasting.

In contrast, Citigroup on Tuesday reported a disappointing 11 percent slump in fourth-quarter earnings. On Friday, JPMorgan Chase said that its fourth-quarter profit declined 23 percent.

The strong fourth-quarter results at Wells Fargo guided the bank to a $15.9 billion profit in 2011, up 28 percent from 2010.

“The quality of earnings was really good, and it was broad,” Timothy J. Sloan, Wells Fargo’s chief financial officer, said in an interview.

Investors welcomed the report, too, sending the bank’s shares up nearly 1 percent, to $29.83, on Tuesday.

But the profit gains at Wells Fargo were limited by declining revenue, reflecting a setback felt across the banking industry amid the sluggish economic recovery. A new round of federal regulations also continued to weigh on revenue at banks.

Wells Fargo’s fourth-quarter revenue fell to $20.6 billion from $21.5 billion in the period a year earlier.

But Wells Fargo is faring better than its competitors. The bank has an edge over Wall Street titans that run large investment banking operations, a business that has suffered from rampant volatility in the markets.

Wells Fargo does not break out its investment banking results, but the wholesale banking unit, which includes the sales and trading business and the corporate lending unit, earned $1.6 billion in the fourth quarter. The results were down only 3 percent from the period a year earlier.

And while other big banks struggle to shed the legacy of the mortgage bust, Wells Fargo has patched up its giant lending operation and produced greater profits. In addition to reducing the expense for its bad-loan reserve by $600 million, Wells Fargo said its bucket of nonperforming loans in the fourth quarter declined roughly 20 percent from the period a year earlier.

“We like lending,” Mr. Sloan said, adding that “we want to grow.”

Businesses in recent months have increased their appetite for credit, particularly at Wells Fargo. The bank also continued to dominate the mortgage business, with more than a quarter of the market. Its loan total grew to $769.6 billion in 2011, from $757.3 billion at the end of 2010.

So while many potential homeowners continue to balk at securing new loans, Mr. Sloan said a consumer spending revival could be on the horizon. “Those who are employed are slowly but surely improving,” he said.

The uptick in lending has bolstered the bank’s profits.

Profit in the community banking division, which includes Wells Fargo’s retail branches and mortgage business, rose 30 percent to $2.5 billion in the fourth quarter, compared with the quarter a year ago. Wells Fargo has also grown since it took control of the Wachovia Corporation at the peak of the financial crisis, which allowed it to build a network of retail branches on both coasts.

“The deposit side of the business is one place where Wells is very well positioned,” said Brian Foran, a senior analyst with Nomura. “They don’t know what to do with all these deposits.”

Article source: http://dealbook.nytimes.com/2012/01/17/wells-fargo-fourth-quarter-profit-up-20/?partner=rss&emc=rss