Everything Warren Buffett: FORBES: All's Well At Wells Fargo

Thursday, October 16, 2008

FORBES: All's Well At Wells Fargo

Ruthie Ackerman, 10.15.08, 12:45 PM ET

The slowing U.S. economy and ailing housing market slammed Wells Fargo with stiff credit losses and write-downs in the third quarter, but the bank's earnings were stronger than expected, sending its shares higher on Wednesday.

Wells Fargo, whose largest investor is Warren Buffett's Berkshire Hathaway (nyse: BRK - news - people ), saw its shares shoot up 3.1%, or $1.04, to $34.56 in morning trading.

The bank added $500.0 million to credit loss reserves, or 10 cents per share, doubling its total allowance to $8.0 billion, up from $4.0 billion, since the credit crunch began one year ago.

Last week, Wells Fargo beat out its rival suitor Citigroup (nyse: C - news - people ) in its quest for Wachovia (nyse: WB - news - people ), agreeing to pay $15.1 billion in an all-stock takeover, after Citigroup ended talks on a potential deal and SAID IT would not block a deal between the two banks. (See Citi Waves Goodbye To Wachovia.)

On Wednesday Wells Fargo (nyse: WFC - news - people ) reported its third -quarter profit tumbled 27.3%, to $1.6 billion, or 49 cents per share, down from $2.2 billion, or 64 cents, in the prior year. Analysts had expected a profit of 34 cents per share.

Revenue rose 5.0% to $10.4 billion, below analysts??? predictions of $11.1 billion.

Wells Fargo saw significant deposit inflows late in the third quarter, thanks to the turmoil in the U.S. financial markets and lack of confidence in other financial institutions, said Robert W. Baird analyst David A. George. All told I think the quarter was reasonably good especially given the environment, he said.

The bank set aside $2.5 billion for credit losses, while net charge-offs more than doubled, to $2 billion.

Chief Credit Officer Mike Loughlin said consumers were affected by falling home prices and rising energy costs and unemployment levels hurt the performance of consumer loans during the quarter. But looking on the bright side, he said, there are ???signs of stabilizing loan losses in our business direct and student-loan business.???

Results also included $646.0 million of charges for exposure to Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) preferred stock and Lehman Brothers Holdings (nyse: LEH - news - people ) bankruptcy.