Decent Quarters at Wells, Washington Mutual - TheStreet

Decent Quarters at Wells, Washington Mutual

Wells misses estimates but hoists its dividend.
Author:
Publish date:

Updated from 11:21 a.m. EDT

Wells Fargo

(WFC) - Get Report

and

Bank One

(ONE) - Get Report

reported higher third-quarter profits on Tuesday, although the results paled compared to other big lenders.

In the quarter, San Francisco-based Wells reported an 8% profit gain, while net income rose 7% at Chicago-based Bank One. On Monday,

Citigroup

(C) - Get Report

, the nation's biggest financial services firm, reported a 20% profit gain.

Wells earned $1.56 billion, or 92 cents a share, compared to $1.4 billion, or 84 cents a share, a year ago. The bank's earnings came in a penny shy of the Thomson First Call estimate. It also boosted its quarterly dividend by 50% to 45 cents.

Wells said its earning would have been higher, if it had not taken steps to reposition its bond portfolio for a rising rate environment. The bank said those actions reduced earnings by $171 million, or 10 cents a share.

Bank One earned $883 million, or 79 cents a share, compared with $823 million, or 70 cents share. The banker bested the First Call estimate by four cents.

Both banks reported strong revenue growth from their retail operations and sharp declines in the bad commercial loans, two trends that have emerged at many banks in the third quarter. Both banks confirmed another trend, which is that demand for new commercial loans remains lackluster.

After the bell,

Washington Mutual

(WM) - Get Report

, the nation's largest thrift, reported a 5% rise in third quarter profits, as the Seattle-based bank met Wall Street expectations. WaMu, the nation's second biggest home lender, reported net income of $1.03 billion, or $1.12 a share, compared with $981 million, or $1.02 a share, a year ago.

WaMu also raised its quarterly dividend a penny to 41 cents.

In other bank news,

U.S. Bancorp

(USB) - Get Report

reported a 14% gain in third-quarter profits, as the bank also benefited from increased consumer borrowing. In the quarter, the bank earned $985 million, or 51 cents a share, compared to $860 million, or 45 cents a share, a year ago. The earnings were in line with estimates.

Total revenues at Wells were up sharply, rising 19% to $7.2 billion, compared to a year ago. Wells is the nation's largest home lender and, not surprisingly, mortgage-banking revenues accounted for 58% of the bank's revenue growth in the quarter.

Wells also reported that despite the rise in mortgage rates in the second half of the quarter, the demand for home loans and home equity lines of credit "remained robust.'' The bank said the dollar value of consumer and real estate loans rose 41% to $37.4 billion in the quarter.

Bank One also reported big gains in retail lending, particularly in home equity loans. The bank issued $4.7 billion in home equity loans, up 24% from the prior year.

But Bank One's big credit card division did not fair as well. Net income from credit cards was down 4% to $285 million. The bank blamed some of the decline on a need to set aside more money for unpaid consumer bills, as the managed net charge-off rate for bad debts rose to 5.3% from 5%. The provision for credit losses was $246 million, up 66% from a year ago.

The best performing division at Bank One was commercial, which reported a 45% gain in net income to $361 million. Despite a lackluster commercial lending environment, the bank benefited from a 48% decline in the amount of bad corporate loans in its portfolio. The bank released $150 million from a loan loss reserve account, in light of the decline in nonperforming loans to $526 million.