Updated from 9:36 a.m. EDT

Wells Fargo ( WFC) made it clear on Thursday that its hefty writedowns of Wachovia's bad debt, combined with strong "traditional banking" business, has put the company ahead of competitors to boost profits as the economy begins to stabilize.

The San Francisco-based bank said it expects to report a first-quarter profit of $3 billion, or 55 cents per share on the back of stronger capital markets and new mortgage business. The expectation far exceeded the average analyst's guess of 23 cents per share, according to Thomson Reuters.

The news set off a market rally, with the Dow Jones Industrial Average soaring 200 points, led by financial stocks like Wells, Bank of America ( BAC), JPMorgan Chase ( JPM) and American Express ( AXP). Wells shares surged as much as 34% in early trading, but eased a bit as the morning wore on, recently trading up $3.89, or 26%, to $18.78.

CFO Howard Atkins attributed the profit boon to hefty writedowns on Wachovia's troubled loans more than improving credit-quality among consumers, although the firm has extended more than $225 billion of credit to U.S. taxpayers since early last October, when it received its $25 billion in bailout money.

"A lot of the losses from the Wachovia deal are behind us and we can now enjoy the benefits," Atkins said in an interview on CNBC.

Atkins also said the firm is "seeing some good signs" in California's housing market, which was among the worst hit by the home-value boom and bust. The trend applies not just to the refinancing boom taking place across the country, but with new buyers entering the market to buy homes at depressed prices.

If you liked this article you might like

How Long Can This Rally Run?: Cramer's 'Mad Money' Recap (Monday 9/19/17)

How to Make a Deal Like Billionaire Investor Warren Buffett

Elizabeth Warren Slams Wells Fargo, Equifax: Cramer's Top Takeaways

Here's How to Invest Like a Billionaire

How to Invest Like Billionaire Warren Buffett