Wells Fargo (NYSE:WFC) reported record profits for the third quarter, rising a huge 98 percent to $3.2 billion, mostly based on the acquisition of Wachovia.
The third-largest bank in the United States by market capitalization, Wells Fargo’s earnings came in at $3.24 billion, or 56 cents a share, in contrast to $1.64 billion, or 49 cents a share last year. Revenue was also about twice what it was last year in the same period, reaching $22.5 billion.
According to the bank, the third-quarter results came from strong moves from its mortgage lending business, among others. The street wasn’t buying that though, as the stock fell in price (although rising a little later) on concerns over the growing number of non-collectible loans the company faces throughout 2010; including residential and commercial. The mortgage lending results they were talking about came primarily from refinancing fees, with about $3 billion in revenue generated from that, not from writing new mortgages.
Even so, the threat to the company is very real, with loans that aren’t drawing principal or interest payments surging to $23.5 billion, a 28 percent rise from the last quarter. Some analysts following the company say Wells Fargo has been using their reserves as “a kind of ATM to report earnings,” i.e. making them look better than they really are.
The rate of loan failures for Wells Fargo is faster than their main rivals JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp. (NYSE:BAC).
Demand for loans continues to slide, as assets and loans held by Wells Fargo declined in the quarter, which the rest of the industry has also experienced, finishing at around $800 billion. At the end of 2008 the company had held $864.8 billion in loans.
Provisions for credit losses were over double for the quarter, increasing to $6.11 billion in comparison to last year and about a 20 percent increase from the second quarter. Net charge-offs also grew to 2.5 percent from 1.96 percent on average loans. Nonperforming assets also grew during the quarter to 2.93 percent from the 2.23 percent for the last quarter; something expected by the company.
The major concern for those following Wells Fargo is they aren’t keeping up with how quickly their loan portfolio is faltering and that could have detrimental impact on the company going forward into 2010.
