Wells Fargo net tops views

By Jonathan Stempel

NEW YORK (Reuters) - Wells Fargo & Co <WFC.N> on Wednesday posted a quarterly profit that easily topped forecasts, as it won more mortgage customers, boosted revenue and cut costs, helping to offset a big increase in bad loans.

Though profit fell 11 percent, the second straight quarterly decline, the results show the fifth-largest U.S. bank continues to navigate the nation's housing and credit crisis more smoothly than most large rivals. Wells Fargo is also the second-largest U.S. mortgage lender.

"They're facing the same headwinds, but they have always been conservative in lending, and never were as far out on the risk curve," said Richard Moroney, chief investment officer of Horizon Investment Services LLC in Chicago.

Shares rose $1.69, or 6.1 percent, to $29.50 in late morning trading on the New York Stock Exchange.

First-quarter profit for San Francisco-based Wells Fargo fell to $2 billion, or 60 cents per share, from $2.24 billion, or 66 cents per share, a year earlier.

Revenue increased 12 percent to $10.56 billion, while expenses dropped 1 percent to $5.46 billion.

Analysts on average had forecast profit of 57 cents per share on revenue of $10.4 billion, according to Reuters Estimates. Results included gains of $485 million tied to credit card network Visa Inc's <V.N> initial public offering last month.

"Despite a weakening economy, the continued downturn in housing and expected higher charge-offs, this was a remarkably strong quarter," Chief Executive John Stumpf said.

Average loans grew 19 percent and core deposits increased 9 percent, while net interest margin, already one of the industry's best, expanded.

This helped offset the $2.03 billion set aside for credit losses, nearly triple the $715 million set aside a year earlier. Net charge-offs more than doubled to $1.53 billion, and nonperforming assets swelled 69 percent to $4.5 billion.

Results improved from the fourth quarter, when a write-down for home equity loans limited profit to $1.36 billion. Wells Fargo said it is trying to sell $11.5 billion of home equity loans, but plans to keep $83.6 billion.

Billionaire Warren Buffett's Berkshire Hathaway Inc <BRKa.N> <BRKb.N> is Wells Fargo's largest investor, owning 8.8 percent of its stock at year end, Thomson ShareWatch said.

HOUSING HASN'T BOTTOMED

While mortgage lending edged down to $66 billion from $68 billion a year earlier, applications rose 17 percent to $132 billion and soared 45 percent from the fourth quarter. Sixty-two percent of applications were for refinancings.

"This is bread-and-butter, lots of homeowners across the country, and very high quality, which gives us lots of opportunities to cross-sell," Chief Financial Officer Howard Atkins said in an interview. "That's exactly an area that plays to our strengths, and we know we're picking up market share."

Cross-selling involves the sale of multiple products to each customer, and has long been a key Wells Fargo strategy. Atkins said the bank now sells an average 5.7 products to each retail customer and 6.2 to each business customer, both records.

Wells Fargo remains cautious, however. "The prudent assumption to make is that housing has not bottomed yet, and the economy may not have bottomed yet," Atkins said.

Profit fell 5 percent to $1.43 billion from retail banking, fell 25 percent to $475 million in wholesale business banking, and fell 13 percent at Wells Fargo Financial, which lends to less credit-worthy people.

Net interest margin fell to 4.69 percent from 4.95 percent a year earlier, but rose from the fourth quarter's 4.62 percent.

Wells Fargo said it has about 3,296 branches in 23 U.S. states, and $595.2 billion in assets.

Through Tuesday, Wells Fargo shares had fallen 8 percent this year, compared with a 14 percent drop in the Philadelphia KBW Bank Index <.BKX>.

(Editing by Dave Zimmerman and Gerald E. McCormick)