By Jonathan Stempel
NEW YORK (Reuters) - Wells Fargo & Co shares lifted as much as 24.3 percent after the billionaire investor Warren Buffett said the fourth-largest U.S. bank will emerge "better than ever" from the nation's credit crisis.
Speaking on CNBC television, Buffett said Wells Fargo is benefiting from low benchmark interest rates by being able to borrow at low cost.
Berkshire Hathaway Inc, Buffett's insurance and investment company, was Wells Fargo's largest investor at year end, owning a 7.2 percent stake. Buffett suggested that the greatest risk might be the prospect that banks sell more common stock, diluting existing shareholders.
"These are a couple of tough years for losses in the banking business, but you expect a couple tough years every now and then," Buffett said. "The earning power is going to be greater by far than it has ever been when you get all through with it. The only worry in that is the government will force you to sell shares at some terribly low price."
Wells Fargo on Friday slashed its dividend 85 percent to help save $5 billion a year, and said it hopes to return the $25 billion it took from the government's Troubled Asset Relief Program as soon as is practical.
Prior to the dividend cut, Wells Fargo shares had fallen 72.5 percent this year, in part on concern about the risk from Wells Fargo's $12.5 billion purchase on Dec 31 of Wachovia Corp, which was felled by exposure to risky mortgages.
"Wells Fargo had been sold down to absurd levels," said Gary Townsend, founder of Hill-Townsend Capital in Chevy Chase, Maryland, who said he bought Wells Fargo shares last week.
"Buffett affirmed his views that banks are in an improving position," he continued. "They are taking enormous market share, deposit growth is extremely strong, and they are finally being paid for the lending risks they are taking. There remain significant headwinds for this group, but we've seen it before -- they can't trade at absurd levels without finding support."
Wells Fargo lost $2.73 billion in the fourth quarter, its first quarterly deficit in seven years, but analysts on average expect it to be profitable in every quarter in 2009 and 2010.
The bank expects $5 billion of annual cost savings from the Wachovia takeover, and last week said it found ways to reduce expenses another $2 billion.
Buffett said Wells Fargo's "prospects three years out have been better than ever.
In afternoon trading, Wells Fargo shares were up $1.46, or 17 percent, at $10.07, after earlier rising to $10.70. They began the year at $29.48.
(Reporting by Jonathan Stempel)Related Links
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