Dragged down by worse-than-anticipated writedowns in its venture capital portfolio and higher loan-loss provisions, Wells Fargo & Co. reported a second-quarter loss of $87 million, or 5 cents a share, missing the already lowered analyst consensus by 6 cents.
Wells' report came on a mixed day for financial companies. KeyCorp reported a $160 million loss for the quarter, citing a previously announced restructuring program. Meanwhile, Bank One Corp., which has been undergoing its own major restructuring, did much better than in the like period a year ago but is not out of the woods just yet.
But some were taken aback by Wells Fargo's report. The San Francisco company said it took $1.16 billion in noncash impairment and other special charges, amounting to 67 cents per share. The bulk of these charges came from a writedown of $1.1 billion, or 63 cents, in the value of its private and public securities portfolio.
In a warning last month, Wells Fargo told Wall Street to expect a $1.13 billion charge.
"This was slightly above our pre-announcement of June 6 as we completed a thorough review of all equity investments, partnerships, and joint ventures," chief financial officer Ross Kari said in a prerecorded conference call.
A smattering of weaker-than-expected reports on credit quality and expenses also contributed to the gap between Wells Fargo's report and Wall Street's expectations. Loan-loss provisions increased 55%, to $427 million, as the company reported deterioration in its wholesale lending portfolio and worsening quality in consumer loans. Three large commercial credits boosted nonperforming assets 7% from first-quarter levels, to $113 million.
Wells' net interest income was a bright spot, rising to $3.03 billion from $2.68 billion, on loan and deposit growth and improved lending margins.
Echoing other regional banks that have posted second-quarter results, Wells Fargo said that losses in its retail lending portfolio also have expanded because of higher bankruptcy filings.
Wells Fargo has been indicating pressure in its credit portfolio, but credit problems have been "gradual and manageable," said Jennifer Thompson, an analyst at Putnam Lovell Securities. "This quarter there was a little more of a pop," and that surprised some investors, she said.
Shares of Wells Fargo rose 3.2%.
KEYCORP
KeyCorp, which unveiled a major restructuring in May that included the shuttering its auto leasing business, reported a net loss of $160 million. The Cleveland banking company took $402 million in various charges as part of the restructuring program aimed at improving profits.
Without the charges, the company reported net income of $28 million or 7 cents a share, beating analyst estimates by 1 cent.
"I am pleased, generally, on second-quarter results," chief executive officer Henry L. Meyer 3d said in a conference call with investors and analysts. They "reflect the implementation of strategies announced upon my May election as chairman."
Brent Somers, chief financial officer at KeyCorp, said the company is comfortable with third-quarter and yearend estimates. He said the company expects revenue growth of 5% to 9% for the year and earnings per share of $1.43 to $1.53.
Key's provision for loan losses was $401 million for the three months, against $110 million for the first quarter. In trading Tuesday the bank's stock rose 1%.
COMERICA
Carried by stable asset quality and revenue growth, Comerica Inc. exceeded analyst expectations in posting a 5% increase in profits, to $216 million.
The Detroit company earned $1.18 a share, against $1.12 in the year-ago period. The consensus estimate by analysts was $1.17. Net income was $208 million, or $1.13 a share, including $14 million of restructuring charges related to the acquisition of Imperial Bancorp.
Net interest income rose $30 million, to $527 million, a $30 million increase from the same period last year. Growth in earnings assets and stable net interest margin supported by strong growth in interest-free deposits was credited with the increase.
BANK ONE
The Chicago company said net income was $664 million, or 56 cents a share. Excluding a $44 million after-tax charge for an accounting change, operating profits were $708 million, or 60 cents a share, up 10% from a year ago and in line with expectations.
Bank One credited a strong balance sheet and the aggressive management of credit risk. The performance compares favorably with last year, when the company took a $1.27 billion charge. The operating income was also slightly above what Bank One had projected in June, when it said second-quarter earnings would likely be in line with first-quarter results of 58 cents a share.
Bank One's performance was affected by the sale of $232 million of problem commercial credits, which led to $42 million of after-tax net chargeoffs. As a result, the company added $24 million to loan-loss reserves.
James Dimon, who took over as chairman and chief executive officer last year, said the second-quarter results show that the struggling company is righting itself. "We are conscious of the difficult business climate and remain sharply focused on continued improvement in our cost structure," he said in a prepared statement.
The company's stock rose 1.3%.
U.S. BANCORP
U.S. Bancorp reported a 20.8% decline in profits, to $562.3 million, reflecting $256.3 million of merger-related and restructuring charges mainly associated with its acquisition by Firstar Corp., which took the seller's name.
Excluding the charges, earnings per share of 43 cents met the consensus of analysts.
David Moffett, vice chairman and chief financial officer, said during an investor conference call Tuesday that the Minneapolis company would incur $430 million of additional charges associated with the buyout, bringing total merger-related charges to $1.4 billion.
On Tuesday, U.S. Bancorp's stock rose 1.7%.
AMSOUTH
Profits at Amsouth Bancorp of Birmingham, Ala., beat Wall Street expectations even though falling net interest income and rising reserves for loan defaults slashed earnings 18% from the year-ago period.
The company, which has 600 branches in seven states, earned $133.5 million, or 36 cents a share, 1 cent more than the consensus estimate of analysts surveyed by First Call/Thomson Financial. Amsouth's stock rose 1.8%.
WASHINGTON MUTUAL
Washington Mutual Inc. reported earnings of $798.2 million, up 63% from the second quarter of 2000. Earnings per share of 91 cents beat a consensus of analysts estimates by 10 cents. Wamu's stock rose 4%.
Laura Mandaro, Patrick Reilly, Alissa Schmelkin, and David Boraks contributed to this report.
