(07-17) 13:49 PDT San Francisco (AP) —
Wells Fargo & Co. raked in more service fees and milked customer deposits to boost its second-quarter profit by 9 percent, sticking to a familiar formula that paid off even as more households struggled to pay their bills.
Two smaller rivals, U.S. Bancorp and KeyCorp, didn’t fare quite as well in other banking results released Tuesday, but both steered clear of the unnerving losses that have plagued several other lenders in recent months.
The reports provided investors with their first look at how major banks fared during the spring Д a period marked by deepening loan problems as rising interest rates, declining home values and higher gas prices strained consumer budgets.
The trouble has been especially acute among borrowers who bought homes during the past few years by relying on risky, adjustable-rate loans because they either had tarnished credit records or didn’t make enough money to qualify for more traditional mortgages.
The rates on many of these so-called subprime loans stated to climb last year as home values in many parts of the country began to crumble, causing many borrowers to relinquish their houses because they can’t refinance loans they no longer can afford.
Wells Fargo, the nation’s fifth largest bank, has been largely unscathed by the subprime implosion so far, even though it ranks among the sector’s largest lenders.
“Wells is doing a better job than other banks,” said analyst Tom Kertsing of Edward Jones. “I would still expect to see more deterioration in other parts of the industry.”
San Francisco-based Wells Fargo earned $2.28 billion, or 67 cents per share, during the April-June period. That compared with net income of $2.09 billion, or 61 cents per share, a year earlier.
Revenue climbed 13 percent to $9.89 billion, the bank’s biggest quarterly increase in nearly two years. The last time Wells Fargo grew at a faster clip occurred in the third quarter of 2005 when revenue rose 16 percent.
The earnings matched the average estimate among analysts surveyed by Thomson Financial, while revenue was higher than the $9.64 billion projection.
Wells Fargo shares gained 14 cents to $35.59 Tuesday.
The bank benefited from a 23 percent increase in noninterest income, propelled by higher fees on deposit accounts, credit cards and other basic financial services.
Wells Fargo also fattened the spread between the average rate it paid to attract customer deposits and the average price it charged for loans. This gap, known as the net interest margin, stood at 4.89 percent in the second quarter, up from 4.76 percent a year ago.
Meanwhile, U.S. Bancorp earned $1.16 billion, or 65 cents per share, in the quarter, down 4 percent from $1.2 billion, or 66 cents per share, during the same period last year. Revenue of $3.51 billion was up 1.5 percent from $3.45 billion a year ago.
Analysts polled by Thomson Financial were expecting U.S. Bancorp earnings of 67 cents per share on revenue of $3.47 billion. The Minneapolis-based company’s shares fell 33 cents to $32.87 Tuesday.
Cleveland-based KeyCorp, which operates more than 900 branches in 13 states, earned $334 million, or 84 cents per share, in the quarter. That represented an 8 percent improvement from a profit of $308 million, or 75 cents per share, last year.
The performance soared past the average analyst estimate of 70 cents per share, according to Thomson Financial. Keycorp shares surged $1.61 to $36.71 Tuesday.
Without providing a specific breakdown, Wells Fargo said its subprime mortgages are held in a $22 billion portfolio of “debt consolidation” loans. The bank said it lost just $10 million in this segment during the second quarter.
Wells Fargo management believes it is better positioned to avoid major subprime headaches because it demanded more paperwork to verify the incomes of borrowers and eschewed the kind of exotic loans that have devastated other lenders.
The confident outlook is reflected in Wells Fargo’s allowance for future credit losses. The reserve stood at $4.01 billion at the end of June, down from $4.04 billion at the same time last year.
“It was a very solid quarter,” said RBC Capital Markets analyst Joe Morford. “We are particularly encouraged by the stable credit trends.”
U.S. Bancorp held $3.2 billion in subprime mortgages at the end of June, up from $3 billion at the end of March. Richard Davis, U.S. Bancorp’s chief executive officer, told analysts in a conference call that bank’s subprime lending is “minimal and very manageable.”
In an another development, U.S. Bancorp said its chief credit officer Michael Doyle, had resigned. “Mike’s departure in no way indicates concerns about our credit quality or indicate a change in credit philosophy,” Davis said.
U.S. Bancorp’s provisions for credit losses remained at $2.26 billion in the second quarter, unchanged from the first quarter and up less than 0.5 percent from $2.25 billion a year ago.
Although it hasn’t been hard hit yet, Wells Fargo is feeling some pain from the housing slump. The bank said more of its customers are missing payments on home equity loans, a trend that management expects to add to its loan losses in the rest of the year. The bank said its home equity headaches are concentrated in the Midwest and California’s Central Valley.
The bank’s second-quarter loan losses totaled $720 million, up 67 percent from $432 million at the same time last year.
___
AP Business Writer Joshua Freed in Minneapolis contributed to this story.
Posted in Money 