Wells Fargo & Co. swung to a fourth-quarter loss on a $5.6 billion credit reserve on slumping loan quality.
The company also reported that Wachovia, the struggling bank it bought Dec. 31 and didn't include in its bottom line, lost $11 billion in the period.
Wells Fargo agreed in October to acquire Wachovia days after federal regulators brokered a deal for the struggling bank to be acquired by Citigroup Inc.
Wachovia has been weighed down by surging credit losses, notably related to its purchase several years ago of California-based mortgage lender Golden West. That saddled Wachovia with more-exotic loans that have been going bad fast as the housing market continues to deflate.
Wells Fargo's shares were up 20.4% at $19.50 in premarket trading amid a broad surge in beaten-down financial stocks. Through Tuesday the stock was down 45% this month.
Meanwhile, the company announced a dividend of 34 cents a share, allaying fears it might cut its dividend in order to improve liquidity.Many cash-strapped U.S. banks have been cutting their dividends to boost their balance sheets, and analysts were wondering whether Wells Fargo would do the same, especially because it issued nearly 900 million shares during the quarter, which would add more than $1.25 billion to its dividend payments.
The San-Francisco-based bank bulked up in the quarter, raising nearly $13 billion through a common-share offering and getting $25 billion in government funding that helped it close its buy of Wachovia. The company said Wednesday it has no plans to ask for further government bailout money.
Although Wells Fargo wasn't as heavily invested in the riskiest of mortgage products as some of its peers, California's housing-market swoon left it with plenty of bad loans.
The bank posted a net loss of $2.55 billion, or 79 cents a share, compared with prior-year net income of $1.36 billion, or 41 cents a share. The latest results included $1.20 a share in charges related to credit reserve builds, a write-down on aged loans and merger costs.
Revenue decreased 3.8% to $9.82 billion.
Analysts surveyed by Thomson Reuters expected earnings of 33 cents on revenue of $11.65 billion.
Wachovia's results were not included in Wells Fargo's fourth-quarter results, since the deal closed at year's end. But its $11 billion loss included $11.3 billion in tax-asset write-downs, credit-reserve builds and market disruption losses.
Asset quality again weakened during the quarter, with net charge-offs — loans banks think they won't be able to collect — at Wells Fargo rising to 2.69% of average total assets from 1.28% a year earlier and 1.96% in the third quarter. Last year, the company made a policy change for only those loans in default for 180 days or more to be written off. Previously, those in default 120 days or more were.
Chief Credit Officer Mike Loughlin said declines in residential real estate values, higher unemployment rates and increased bankruptcies hurt the company's credit performance.
Nonperforming assets — those near default — fell to 1.04% from 1.22% in the prior quarter.
Wells Fargo boosted its credit reserve by $5.6 billion during the quarter. Total loan-loss provisions were $21.7 billion for the combined company as of Dec. 31, up from $8 billion at Wells Fargo alone as of Sept. 30.
Loans delinquent 90 days or more as of Dec. 31 totaled $12.65 billion in the latest quarter for Wachovia and Wells Fargo combined, up from $6.39 billion for Wells Fargo alone a year earlier.
Average core deposits increased 10%, while loans rose 11%.
The company said it took $37.2 billion of credit write-downs Dec. 31 of high-risk loans in Wachovia's loan portfolio in order to reduce the need for provisions in the future.