Mortgages Help Boost Wells Fargo to Record Profits

Wells Fargo reported Thursday that it expects to post a record earnings for the first quarter of 2009, driven by strong returns from its mortgage business and its acquisition last year of Wachovia Corp.

The megabank says it expects to post a net income of $3 billion on revenues of $20 billion for the first quarter. Both are higher than analysts expected, causing shares in the megabank to rise 34 percent in premarket trading, to $19.90

"Business momentum in the quarter reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results," said Wells Fargo Chief Financial Officer Howard Atkins.

The expected earnings were boosted by approximately $1.25 billion by an 85 percent reduction in the common stock dividend, from $0.34 per share to $0.05 per share, as announced on March 6, 2009. The company will report its actual figures on April 22.

$100 billion in new mortgages in first quarter

The company completed $100 billion in new mortgages and ended the quarter with another $100 billion in mortgage applications pending. The latter figure is a 41 percent increase over the previous quarter, and suggests mortgage closings will remain strong in the second quarter.

Legacy operations from the Wachovia acquisition accounted for about 40 percent of revenues. With the acquisition of Wachovia Corp. at the end of last year, Wells Fargo reports that it now serves almost one of every three U.S. households. The company is the nation's second-largest home lender, behind Bank of America/Countrywide.

The lender reported that it received $190 billion in mortgage applications from over 800,000 applicants, up 64 percent from the previous quarter. The $100 billion in mortgage closings represented refinancings or new home purchases for 450,000 U.S. homeowners.

150,000 loans modified

The company also reported that it modified over 150,000 mortgages for homeowners in financial difficulty to help them avoid foreclosure and stay in their homes. It also reported a decline in charge-offs for the combined Wells Fargo/Wachovia operations, which totaled $3.3 billion for the quarter, down from a combined $6.1 billion for the then-separate companies in the fourth quarter of 2008.

"Our commitment to serving credit-worthy consumer, small business and commercial customers has continued throughout the credit crisis and, in fact, accelerated during the quarter, "said Atkins, "We're providing significant support to U.S. homeowners."

The $3 billion net income works out to a profit of approximately 55 cents a share after preferred dividends, including $372 million paid to U.S. taxpayers on the U.S. Treasury's Capital Purchase Program investment.