consensus estimate

DealBook: Wells Fargo Profit Rose 20% in Fourth Quarter

Wells Fargo, 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 and an anemic banking industry.

The bank, based in San Francisco, turned a $4.1 billion profit in the fourth quarter, or 73 cents a share, as its loan portfolio showed signs of improving and it avoided exposure to the volatile investment banking business. That compared with a profit of $3.4 billion, or 61 cents a share, in the period a year earlier. The figures — padded somewhat by the bank’s decision to set aside $600 million less in reserves to cover soured loans — narrowly beat analysts’ consensus estimate of 72 cents a share.

The strong fourth-quarter results helped the bank to a $15.9 billion profit in 2011, up 28 percent from 2010, when the bank earned $12.36 billion.

“I’m extremely pleased with Wells Fargo’s performance in 2011 — including strong deposit and loan growth, record cross-sell and record earnings,” John G. Stumpf, the bank’s chairman and chief executive, said in a statement.

Investors responded well to the report, sending the bank’s shares up more than 2 percent, to about $30.35, in morning trading on Tuesday.

But the profit gains at Wells Fargo were limited by declining revenue, reflecting a setback felt across the banking industry as a result of 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. For the year, the bank posted $80.9 billion in revenue, down from $85.2 billion in 2010.

Wells Fargo and its fellow big banks are struggling to recoup precious revenue lost to a new rule that limits fees charged to merchants when a consumer uses a debit card. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, Democrat of Illinois, is expected to cost banks hundreds of millions of dollars every quarter.

“The Durbin hit is real money,” said Brian Foran, a senior analyst with Nomura, who cautioned that banks were unlikely to reverse their revenue woes anytime soon. “We’re not going to get that inflection point in 2012.”

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

JPMorgan Chase said on Friday that its fourth-quarter profit dropped 23 percent, largely as a result of a slowdown at its investment bank, where profit plunged 52 percent.

But Wells Fargo has a smaller sales and trading operation than, say, JPMorgan or Goldman Sachs, which is to report earnings on Wednesday.

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 3 percent from the period a year earlier.

And while other big banks struggle to shed the legacy of the mortgage boom and bust, Wells Fargo has patched up its giant lending operation and produced greater profits, quarter after quarter. 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.

There is growing demand for credit from Wells Fargo, too. The bank continues to dominate the mortgage business, with a nearly 30 percent share of the market. Its loan total grew to $769.6 billion in 2011 from $757.3 billion at the end of 2010.

The uptick in lending has bolstered profits.

Profit in the community banking division, which includes Wells Fargo’s retail branches and mortgage business, soared 30 percent, to $2.5 billion, in the fourth quarter from the period a year earlier.

Wells Fargo has also grown since it seized control of the Wachovia Corporation at the peak of the financial crisis, which allowed the bank to build a network of retail branches along both coasts.

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

Article source: http://feeds.nytimes.com/click.phdo?i=23a992c92384f76d34744dc5f75c95cb

DealBook: Posting a Profit, A.I.G. Aims to Trim U.S. Stake

Doug Mills/The New York TimesRobert H. Benmosche, chief executive of the American International Group.

8:49 p.m. | Updated

The American International Group said on Thursday that it swung to a profit in the second quarter as the company took fewer charges related to its effort to shed its government bailout.

Last year, A.I.G. posted a loss of nearly $2.7 billion for the second quarter, harmed by a $3.3 billion accounting charge tied to the sale of a major international life insurance unit. Since then, the insurer has shed additional businesses and, perhaps most important, begun selling down the government’s controlling equity stake.

“A.I.G. is basically back in business,” Robert H. Benmosche, the insurer’s chief executive, said in a telephone interview. “The crisis is over for this company.”

Still, much of the quarter’s gain came from its stake in American International Assurance, the big Asian life insurer that the company took public last year. A.I.G. earned $1.5 billion from its holdings in the unit.

A.I.G. is expected to make additional business changes in the near term, including a potential spinoff of its large aircraft leasing business.

For the quarter, the company earned $1.8 billion, or $1 a share. On an after-tax operating income basis, which excludes additional profit from discontinued businesses as well as accounting charges tied to its overhaul, A.I.G. earned 69 cents a share. That fell short of the 92-cent average consensus estimate of analysts, according to Thomson Reuters.

A.I.G. also said that it had finished an “active wind-down” of its financial products division, the unit whose derivatives contracts tied to subprime mortgages — a portfolio with a notional value of more than $1.6 trillion at one point — led to the company’s near-downfall.

The company said that the notional value of the financial products’ portfolio had fallen 42 percent to $198.4 billion, as the company closed out most of the remaining troublesome mortgage derivatives contracts. Remaining, according to A.I.G., are relatively benign contracts that are unlikely to cause ruinous damage.

Thursday’s results showed that A.I.G. still faced pressure on its core operations, as its Chartis casualty insurance business recorded $539 million in losses because of disasters like tornadoes in the Midwest.

The unit reported $789 million in operating income for the quarter, down from $955 million for the quarter. Still the business increased the amount of its net premiums written by 17.6 percent, to $9.2 billion. It also made few changes to its reserve levels, a sign of better financial health.

SunAmerica Financial, A.I.G.’s domestic life insurance unit, posted an 18.3 percent drop in operating income, to $743 million, hurt in part by lower investment income. But it showed strong growth in sales, including double-digit gains in annuity deposits and retail policies.

Other operations reported declines, including the aircraft leasing business, the International Lease Finance Corporation. The unit posted a 53 percent drop in operating income to $86 million because of accounting charges and retiring old aircraft, though its rental revenue dipped only slightly to $1.1 billion.

Though A.I.G.’s stock price has fallen 10 percent since its “re-I.P.O.,” and fell 6 percent on Thursday amid the broad market sell-off, Mr. Benmosche said that he was not worried about any future stock offerings that the company would hold.

A.I.G. is hoping to take down the government’s stake well below its current 77 percent.

“We’re going to make that decision in November,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=e971249cf3955dc18d32ae736dc6b153

DealBook: Wells Fargo Profit Rose 20% in Fourth Quarter

DealBook: Posting a Profit, A.I.G. Aims to Trim U.S. Stake

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