Wells Fargo swings to 4Q loss

Published 12:00 am Wednesday, January 28, 2009

AP Business Writer

NEW YORK (AP) ó Talk about throwing in the kitchen sink. Wells Fargo & Co. said Wednesday that it swung to a $2.83 billion loss in the fourth quarter as it took significant charges to reduce its exposure to the risky assets of Wachovia Corp. and built up its reserves to cover future losses.

Shares soared 17 percent in premarket trading, adding $2.81 to $19 ó a sign that investors were pleased by the bank’s aggressive moves to clean up its balance sheet. In regular trading, the stock was up $2.71, or 16.7 percent, to $18.90, in morning trading.

For the final three months of the year, the San Francisco-based bank reported a net loss of 79 cents per share, after paying preferred dividends. This compares with earnings of $1.36 billion, or 41 cents per share, a year earlier.

The results included several one-time items, including $5.6 billion, or 99 cents per share, of credit reserve build to cover future loan losses. This includes $3.9 billion, or 69 cents per share, to conform Wachovia’s reserve build practices to its own.

The results also included a write-down of $473 million on Wells Fargo’s securities portfolio and $413 million of write-downs on other loans. The bank also took $294 million, or 5 cents per share, of losses related to the Bernard Madoff fraud, and a $74 million charge related to merger and integration costs.

During the quarter, Wells Fargo aggressively reduced risk on Wachovia’s balance sheet. The bank took a write-down of $37.2 billion related to high-risk loans in Wachovia’s loan portfolio, which reduces the need for future loan loss provisions, Wells Fargo said.

Wells Fargo’s board has announced a dividend of 34 cents per share. Many other banks have had to slice or eliminate their dividends as they work to shore up capital. Analysts have speculated that Wells Fargo may need to reduce its dividend sometime this year.

The bank also said it has no plans to request additional capital from the government under the Treasury Department’s capital purchase program. Last fall, Wells Fargo received a $25 billion investment from the Treasury under the government’s $700 billion financial bailout package. Under the plan, the government has pumped $250 billion into banks through preferred stock purchases in an effort to spur more-normal lending. But both Bank of America Corp. and Citigroup Inc. have required additional investments from the government as they struggle to offset rising loan losses.

For the full year, Wells Fargo earned $2.84 billion, or 75 cents per share, compared with $8.06 billion, or $2.38 per share, in 2007.