Wachovia Fights Off Curve

Wachovia ( WB), the nation's fourth-largest bank, reported a 14% gain in second-quarter profits, boosted by its recent acquisition of automobile lender Westcorp.

In the quarter, the Charlotte, N.C.-based bank earned $1.89 billion, or $1.17 a share, up from $1.65 billion, or $1.04 a share, in the year-ago period. Revenue also rose 14% to $7.26 billion.

Excluding merger and restructuring charges, operating earnings were $1.9 billion, or $1.18 a share.

The bank beat analyst expectations for both earnings and revenue. The Thomson Financial consensus estimate had Wachovia earning $1.15 a share on revenue of $7.13 billion.

Net interest income rose 9% to $3.68 billion, despite a tricky interest rate environment that has made it difficult for lenders to maximize profits from their lending and deposit operations.

The narrowing of the spread between short- and long-tem interest rates has made it difficult for banks to earn fatter investment returns than the interest they are paying out to depositors.

"In the face of a challenging yield-curve environment, we generated double-digit revenue and earnings growth driven by solid execution,'' says Wachovia Chairman and CEO Ken Thompson. "Our team delivered record results in three of our four major businesses, and the first full quarter of results in our new auto-lending businesses exceeded our expectations."

Wachovia completed its Westcorp acquisition in March and those results were added to the bank's financials for the first time in the second quarter. The bank attributed much of the 14% jump in revenue to the addition of Westcorp, which specializes in auto lending.

Fee income, which includes service charges and revenue from investment banking work, also was a big contributor to Wachovia's revenue gains. In the quarter, fee income rose 20% to $3.58 billion.

Non-interest expense at the bank rose 12% to $4.26 billion.

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