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Wells Fargo, US Bancorp post record profits

Wells Fargo & Co. and U.S. Bancorp, the No. 5 and No. 6 U.S. banks, Tuesday posted record first-quarter profits, helped by growth in lending and a decline in bad loans.
/ Source: Reuters

Wells Fargo & Co. and U.S. Bancorp, the No. 5 and No. 6 U.S. banks, Tuesday posted record first-quarter profits, helped by growth in lending and a decline in bad loans.

Net income rose 9 percent at Wells Fargo and 8 percent at U.S. Bancorp. Other large banks posted mixed results, with profit falling at two Ohio-based banks, National City Corp. and Fifth Third Bancorp Inc., and rising at a third, KeyCorp.

Wells Fargo and National City also reported declines in mortgage banking results, long expected by analysts as interest rates rise and refinancing becomes less attractive.

"Corporate lending has remained relatively healthy because of economic growth," said Jim Lyon, a portfolio manager at Oakwood Capital Management in Los Angeles. "There is an issue about how sustainable consumer borrowing will be, especially if the economy no longer benefits from rising real estate prices, which creates a greater willingness to borrow and spend."

Other banks reporting this week include Bank of America Corp. and JP Morgan Chase & Co., the No. 2 and No. 3 banks. Citigroup Inc. Monday reported a larger-than-expected 4 percent increase in profit, while Wachovia Corp. posted a 7 percent increase.

In afternoon trading, Wells Fargo shares rose 0.5 percent; U.S. Bancorp was little changed; National City rose 2 percent, Fifth Third rose 2.4 percent and KeyCorp rose 0.5 percent.


Net income for San Francisco-based Wells Fargo rose to $2.02 billion, or $1.19 per share, from $1.86 billion, or $1.08, a year earlier. Revenue rose 6 percent to $8.56 billion, and excluding mortgages jumped 17 percent.

The results fell short of Wall Street forecasts. Analysts polled by Reuters Estimates on average forecast profit of $1.20 per share on revenue of $8.62 billion.

Mortgage revenue fell 43 percent, but Chief Financial Officer Howard Atkins attributed the decline to accounting adjustments and lower mortgage servicing gains. Applications rose to $95 billion from $91 billion a year earlier.

"The thing some people miss in the mortgage business is that while the refinancing side has slowed down, the purchase mortgage market has been robust," Atkins said in an interview. "People are still buying homes."

Retail banking profit fell 11 percent to $1.21 billion, while profit from wholesale business banking rose 17 percent to $528 million. Wells Fargo set aside 26 percent less than a year earlier for bad loans.

Net income for Minneapolis-based U.S. Bancorp rose to $1.15 billion, or 63 cents per share, from $1.07 billion, or 57 cents. Analysts expected 62 cents.

Revenue rose 7 percent to $3.34 billion, driven by double-digit gains in fees from trust and investment management, merchant processing and credit and debit cards. This more than offset a 1 percent drop in lending income.

Net chargeoffs fell by one-third to $115 million.


Net income for Cleveland's National City, the No. 8 bank, fell to $459 million from $484 million a year earlier. Profit totaled 74 cents per share in both periods. Analysts expected 72 cents.

Chief Executive David Daberko said strength in traditional banking offset a decline in mortgages, where its National City Mortgage unit posted a $69 million loss.

"All of the difficult things that could happen in (the mortgage) market happened -- spreads contracted, and rates were flat," Daberko said in an interview.

Still, he said "consumer and commercial borrowers are very healthy. Credit quality is excellent in both categories."

Bank margins have shrunk because the short-term interest rates at which they fund their operations have risen, but long-term rates at which they lend, until recently, have not.

Narrowed margins hurt Cincinnati's Fifth Third, the No. 10 bank, whose first-quarter profit fell 10 percent to $363 million, or 65 cents per share, from $405 million, or 72 cents. Analysts expected 64 cents.

Cleveland-based KeyCorp, the No. 13 bank, said net income rose 9.5 percent to $289 million, or 70 cents per share, from $264 million, or 64 cents. Analysts expected 69 cents.

Among other large banks, Birmingham, Alabama's AmSouth Bancorp said profit rose 1 percent, while Buffalo, New York's M&T Bank Corp. said it rose 7 percent. (Additional reporting by Belinda Goldsmith and Dan Wilchins)