Wells Fargo & Co. shares continue to surge on speculation that investor Warren Buffett is adding to his sizable stake.

Wells' shares have risen 12% in the past three weeks, to $71.75 in late trading Monday.

Unaffected by Bad News

The stock has advanced despite the release of disappointing third-quarter earnings and speculation that the company would cut it dividend again. Reason: The widespread belief that Mr. Buffett remains as bullish as ever on Wells - and is willing to back that up with cash.

"Warren Buffett's buying of the stock has propped it up," said George M. Salem of Prudential Securities Inc.

Mr. Buffett announced a month ago that he had lifted his stake in the San Francisco-based company to 11.85%. Since the summer, he has had permission from the Federal Reserve Board to buy up to 22%.

Even the disappointing earnings report hasn't stemmed the rally. Wells earned 21 cents a share in the third quarter, down from $1.59 a year earlier. It doubled its loan-loss provision in the face of a deteriorating California economy.

The market is eagerly looking ahead to Jan. 19, when Wells' board is scheduled to reexamine the level of its common stock dividend. The stock fell 8.5% last Dec. 13, when the payout was halved to $2 a share.

A spokeswoman for the bank said Monday that she could not comment on either the bank's dividend policy or recent moves in its stock price.

An assistant to Mr. Buffett's company, Berskshire Hathaway Inc., said that "it has long been the policy at Berkshire Hathaway that we never comment on our portfolio or rumors about our portfolio."

Management Well Regarded

Many analysts continue to think highly of the bank and its management, led by chairman and chief executive officer Carl Reichardt.

James M. Rosenberg of Lehman Brothers Inc., for example, said the stock is performing well because of Wells' "enormous earnings potential."

Just a year ago, Mr. Rosenberg called Wells the nation's most overpriced big bank stock. But he recently put a "buy" recommendation on the stock as a market "outperformer" with a price target of up to $77.50.

Other analysts see tough sledding for another year at the company, with its stock price vulnerable. But they also view it as having one of the most experienced management teams in the banking industry.

High Risk Seen a Manageable

"Well Fargo has one of the highest risk concentrations of any bank and also perhaps the greatest capacity to deal with that risk, both financially and managerially," said Lawrence R. Vitale of Kemper Securities Inc., Chicago, who rates the stock "hold, high risk."

Management strength at Wells was the primary reason cited by Mr. Buffett when the Omaha investor began acquiring the stock in October 1990.

But Mr. Salem is less confident that Wells' management will be able to pull the bank out of California's economic quagmire.

"Mr. Reichardt is an effective banker, but he's not Superman," Mr. Salem said. "He cannot extricate his bank from an over-concentration of its assets in California real estate -- assets whose value is declining and threatening to injure the health of his bank."

Mr. Salem added that he does not believe Mr. Buffett "knows of any secret strength to prevent the eroding financial performance we envision for Wells Fargo."

Pessimistic About California

Mr. Salem has a "sell" recommendation on the stock because most of Wells' assets are in California, a state he believes may suffer "a worse economic contraction" than either Texas or Massachusetts during the 1980s.

"I think it is very odd that Wells Fargo's stock is ignoring both the bad third quarter earnings and accelerating deterioration of California's economy," he said.

"Thus, we conclude that [Mr. Buffett] will regret his purchases of Wells Fargo shares," Mr. Salem said.

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