Wells Fargo & Co reported a surprise quarterly loss Wednesday, its first since 2001, as it added to reserves for credit losses, but it maintained its dividend and said it did not need more taxpayer funds to absorb the troubled lender Wachovia Corp.
Shares of Wells Fargo rose $3.46, or 21.4 percent, to $19.65 in premarket trading.
The bank also said on Wednesday that Wachovia, which it bought on Dec. 31, lost $11.17 billion in the fourth quarter, largely due to loan losses and investment writedowns. Wachovia nearly collapsed from soaring losses on troubled loans before Wells Fargo stepped in.
Analysts have speculated that Wells Fargo will need to raise more capital and cut its dividend to absorb Wachovia.
But the bank said it remains "comfortable in the aggregate" with its original assumptions on Wachovia’s credit quality, and is comfortable with its forecasts for cost savings and earnings impact.
Wells Fargo also maintained its 34 cents per share quarterly dividend and said it has no plans to request new capital from the government’s Troubled Asset Relief Program, after previously receiving $25 billion.
The fourth-quarter loss at Wells Fargo, not including Wachovia, was $2.55 billion, or 79 cents per share, compared with a profit of $1.36 billion, or 41 cents, a year earlier. Revenue fell 4 percent to $9.82 billion.
Results reflected a $5.6 billion addition to credit reserves. They also included several other writedowns, including $294 million of net chargeoffs from the alleged fraud by Wall Street veteran Bernard Madoff.
Wells Fargo had once been considered conservative in how it assessed the quality of Wachovia’s loans, including a big pool of troubled "option" adjustable-rate mortgages.
But investors and analysts have grown more worried about the bank’s assumptions, especially as market conditions deteriorated rapidly. Citigroup’s net loss was $8.29 billion in the fourth quarter, while Bank of America Corp lost $1.79 billion, its first loss in 17 years.
Wells Fargo said $35.5 billion of Wachovia’s remaining $93.2 billion of option ARMs are "credit impaired" and were marked down by 41 percent. The remaining $57.7 billion "has dramatically better credit performance," Chief Financial Officer Howard Atkins said.
Through Tuesday, Wells Fargo shares had fallen 45 percent this year, reflecting worries over Wachovia, while the KBW Bank Index was down 36 percent. Over the last year, Wells Fargo shares have outperformed the index.
