The Wall Street Journal-20080117-Credit Crunch- Wells Fargo-s Net Drops 38-- Largely on Credit Move
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Credit Crunch: Wells Fargo's Net Drops 38%, Largely on Credit Move
Wells Fargo & Co. reported a 38% drop in fourth-quarter net income, largely attributable to a $1.4 billion boost in the reserve for credit losses. Net income fell to $1.36 billion, or 41 cents a share, from $2.18 billion, or 64 cents a share, a year earlier.
The San Francisco-based bank saw credit quality crumble in its home- equity portfolio, second mortgages often concentrated in areas where home values have deteriorated.
"What's happening is home prices have come down in many markets," Chief Financial Officer Howard Atkins said in an interview. "Some consumers who need to move, or need to refinance, are not able to do so because they have no equity in their homes."
A bright spot for Wells Fargo was a 4.7% rise in net new checking accounts last year, meaning a steady stream of new customers who also buy products like home loans or certificates of deposit, in spite of what Mr. Atkins described as a "slump" in the economy.
Mr. Atkins said Wells Fargo was well positioned to do deals because of its strong capital, liquidity and growing net interest margin, the difference between borrowing at lower short-term rates and lending at higher long-term rates. The company also has limited exposure to exotic structures like collateralized debt obligations, an advantage over peers.
"Apart from home equity and credit, we don't have many of the same problems that other big banks do," he said.
