Wells Fargo Beats Bank Rivals in Every Way (Update 1)

Wells Fargo story updated with additional information throughout.

NEW YORK ( TheStreet) -- Wells Fargo ( WFC)'s fourth quarter earnings report on Tuesday proved once again why it trades at a substantial premium to rivals like Bank of America ( BAC), JPMorgan Chase ( JPM), and Citigroup ( C): it consistently makes money quarter after quarter while the kind of ups and downs you would ordinarily associate with a biotech startup.

You wouldn't know we're in the middle of a housing slump by looking at Wells' numbers. Mortgage banking income increased almost 30% to $2.36 billion. Never mind that that was in line with estimates from Stifel Nicolaus analyst Christopher Mutascio. That's impressive growth given the tough times we're in.
Wells Fargo will report fourth quarter earnings Tuesday

"The unclosed pipeline heading into the first quarter of 2012 remains strong at $72 billion. While that is down from $84 billion at the end of the third quarter it is still one of the highest levels over the past several quarters," Mutascio writes.

Mortgage origination revenues grew by 59% versus the third quarter at Wells versus a 12% decline for JPMorgan over the same period.

No wonder JPMorgan Chairman and CEO Jamie Dimon says the bank is " getting killed".

And let's not even mention Bank of America still so badly hung over from its ill-fated 2008 acquisition of Countrywide Financial that it may have to set aside another $32 billion to cover its losses, on top of the $37 billion it has already squandered in losses and reserves, according to Citigroup research.

While Bank of America stopped buying mortgages originated by other banks late last year, that has only left more of what is known as the "correspondent" mortgage business to Wells Fargo, as Wells executive Eric Stoddard explained in this interview .

Wells Fargo also saw growth in investment banking and capital markets, traditionally areas dominated by the likes of Goldman Sachs ( GS) and Morgan Stanley ( MS). And indeed, while Morgan Stanley, Citigroup and Goldman are announcing major layoffs, Wells Fargo says it is hiring traders and dealmakers.

Even in the good days of trading and investment banking, shares of Goldman and Morgan Stanley commanded a lower multiple than Wells, because those businesses were seen as inherently volatile. However, Wells CFO Tim Sloan explained in an interview that he doesn't believe trading necessarily has to be a wildly unpredictable business.

Maybe Wells' biggest positive surprise in the quarter came in its net interest margin (NIM) -- a measure of how much banks earn on their loans versus what it costs them to borrow. Most analysts had been expecting NIM to fall for Wells, since the Treasury yield curve flattened, but Wells actually posted a slight gain in its NIM.

Citigroup ( C), however, also posted NIM gains, but saw its earnings dragged down by poor international performance .

Wells is widely understood to be the least global of the big four U.S. banks, but that doesn't mean it won't expand abroad. The bank bought a London-based lending division from the Bank of Ireland ( IRE) in December for what you can be sure was a bargain price of 690 million euros. Richard Yorke, who heads up Wells' international business, mapped out the bank's international expansion plans in this interview last year.

Best of all, Wells is able to expand in areas such as international lending or trading and capital markets while buying back shares and increasing its dividend, something that will be far more of a struggle for Bank of America and Citigroup.

Atlantic Equities analyst Richard Staite referred to Wells' results as "a solid set of numbers."

Overall, Wells reported a 17.6% rise in net profits in the fourth quarter, though revenues were down from a year ago.

The San Francisco-based bank reported a net income of $4.1 billion or 73 cents per share, compared to a year-ago net income of $3.41 billion or $0.61 per share and a third quarter net income of $4.06 billion or $0.72 per share.

Revenue came in at $20.61 billion, down from $21.49 billion a year earlier. In the third quarter, the bank reported revenue of $19.63 billion.

Analysts expected Wells to report an earnings per share of 72 cents, according to consensus estimates from Zacks.

"The fourth quarter of 2011 was a very strong quarter for Wells Fargo, with record earnings, solid linked quarter growth in loans, deposits and capital, and continued strong credit quality," said Chief Financial Officer Tim Sloan.

Sloan said net interest income benefited from the growth in earning assets and an increase in the net interest margin. Noninterest income also rose during the quarter, aided by strong mortgage banking and capital markets results Sloan said.

Asset-backed finance, capital markets, commercial banking, commercial real estate, corporate banking, corporate trust, credit card, equipment finance, government and institutional banking, insurance, international, merchant services, mortgage, real estate capital markets and retail sales finance all grew revenues versus the third quarter.

-- Written by Dan Freed in New York. Follow this writer on Twitter.
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