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Wells Fargo Q3 Earnings Rise 7%, as Wealth Unit Improves Net Income, Assets

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Wells Fargo (WFC) beat analysts’ expectations, with Q3 earnings per share of $0.60, up 7% from last year’s third quarter. Profits for the quarter were the best ever, $3.34 billion, and for the nine months ended Sept. 30, 2010, was $8.95 billion, or $1.60 per share; that compares with $9.45 billion, or $1.69 per share, for the first three quarters a year ago.

Analysts’ consensus estimate was about $0.55 a share, and the bank’s profit from Q3 2009 was $3.24 billion, or $0.56 a share.

Retail Results

Wells Fargo said its wealth, brokerage and retirement unit, which includes 15,000-plus financial advisors, had revenue of $2.91 billion in the latest quarter, up from $2.87 billion in the second quarter and $2.77 in the same year-ago period.

Net income for the unit was $256 million, down from $270 million in the previous quarter but more than double $111 million reported in the third quarter of 2009.

Assets improved 5% from last quarter for the unit to $1.27 trillion, and managed-account assets were up 10%, the company says.

In addition, Wells Fargo reported that core deposits in wealth, brokerage and retirement grew 17% over the first quarter of 2009, when the merger with Wachovia took place. Loan originations by financial advisors grew 33% year to date.

In terms of its headcount, released separately from its earnings report, Wells Fargo says it had 15,088 financial advisors as of the third quarter, down slightly from 15,102 in the second quarter. 

This keeps it in the No. 3 slot, behind Morgan Stanley with 18,119 FAs and Merrill Lynch with 15,340. 

In addition, the company now has 4,569 licensed bankers vs. 5,094 in the prior period.

When these reps are included, Wells Fargo has 19,657 financial professionals, topping both Morgan Stanley and Bank of America-Merrill Lynch, which has 16,790 financial advisors (when U.S. Trust reps are included). However, BofA says it has a grand total of 19,761 financial professionals (advisors and others) in the organization — beating Wells Fargo by 104. 

Overall assets at Wells Fargo have remained at $1.1 trillion. Including the bank professionals, this represents about $56 million in average assets under management per advisor. Excluding the bank reps, average AUM per broker is $73 million.

Company Results

The company’s third quarter release credited record earnings to “the success of the Wachovia merger and the benefits of Wells Fargo’s steady commitment to our core business of helping customers succeed financially,” according to John Stumpf, Wells Fargo’s

chairman and CEO. Referring to the merger, Stumpf added in a statement, “[O]ur results have shown that this landmark merger is a big success in terms of cost savings, revenue synergies and the quality of the integration.”

No Plans to Initiate a Moratorium on Foreclosures

Stumpf also touched on the recent foreclosure furor. “With respect to recent industry-wide foreclosure issues, there are several important facts to know about Wells Fargo. Foreclosure is always a last resort, and we work hard to find other solutions through multiple discussions with customers over many months before proceeding to foreclosure. We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate. For these reasons, we did not, and have no plans to, initiate a moratorium on foreclosures.”

Mortgage business at Wells Fargo is doing extremely well despite the current market difficulties. The third quarter was its second best for mortgage applications, with $194 billion in new mortgage applications coming through the doors.

Revenue, however, was down, with Q3 only seeing $20.9 billion versus Q2’s $21.4 billion. About a third of that has been attributed to overdraft fee policy changes.

Howard Atkins, chief financial officer, said in a statement, “Earnings and growth were broad based, with all business segments contributing to our record net income. Deposit growth continued to be strong, especially in average checking and savings deposits, which increased 9% from a year ago and 9% (annualized) linked quarter. The Company supplied $176 billion in credit to consumers and businesses, up from both the prior quarter and a year ago, reflecting strong mortgage origination activity and increased commercial lending activity.”

Businesses with double-digit annualized revenue growth-linked quarter, included asset-backed finance, asset management, auto dealer services, brokerage, commercial banking,

commercial mortgage servicing, commercial real estate, debit card, mortgage banking, private student lending, real estate investment banking (Eastdil Secured) and retirement services.

DoubleLine’s Baha: ‘There’s a Lot of Headline Risk’ but ‘Their Numbers Are Great’

Bonnie Baha, portfolio manager and head of the Global Developed Credit Group at DoubleLine, said in an interview, “Wells Fargo is pretty much a class act with regard to the banking and finance industry. They don’t venture off into unknown territory, and there’s not a lot of exposure to sovereign risk. They closed their consumer finance operation; they’re very conservative operators. That being said, they’re also the largest mortgage originator in the country. There’s a lot of headline risk there.”

Despite the headline risk, however, Baha pointed out that Wells Fargo just reported “an incredible third quarter.” Revenues were down, she said, but income was up; “that’s reflective of how they know how to cut costs, manage business lines appropriately and stick to what they know. When [banks] lend far afield they get in trouble, but Wells has never done that.”

Baha continued, “Their numbers are great. The lingering concern over subprime exposure is there; [that’s the] legacy lending from the Wachovia acquisition in 2008, but it’s very well under control in our view. The quality of their earnings is good,” she added.

Regarding foreclosure, she pointed out that putbacks may be an issue. However, she doesn’t see that as a real problem: “At the end of September, [Wells] had sixteen and a half thousand loans challenged that totaled $3.8 billion. In a worst-case scenario, if you figure the bank could lose $5 billion to $6 billion, that’s more than what’s being challenged at present, giving more leeway for more problem loans; they can easily handle that. They made over three billion last quarter. [It’s a matter of h]eadline risk [against] balance sheet strength. Wells Fargo is one of the strongest banks in the industry. An institution that managed to make over $3 billion in one quarter is also adequately reserved against these losses.”

Read about Wells Fargo’s Q2 2010 earnings at


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