Wells Fargo & Co. surprised the markets Thursday morning in a good way, predicting a record $3 billion profit for the first quarter and reaffirming strong support for its Dec. 31 purchase of Charlotte's Wachovia Corp.
Investors expressed their approval and shrugged off disappointing March retail sales data. On Thursday afternoon, the Dow Jones Industrial Average closed up 246 points, or 3 percent.
Some analysts had doubted Wells' decision to buy Wachovia last year, as the Charlotte bank struggled under toxic mortgage loans and suffered a silent run on deposits. But Thursday, Wells chief executive John Stumpf indicated that Wachovia's customers are returning. Stumpf said the Wachovia purchase "has proven to be everything we thought it would be," and that Wachovia's “financial contributions” to first-quarter earnings had exceeded expectations.
Wachovia generated about $8 billion in first-quarter revenue, Wells estimated, and added checking accounts for consumers and small-businesses. That represents a huge improvement from the fourth quarter, when Wachovia posted revenue of just $1.7 billion. That was down 70 percent over the quarter, as jittery consumers took their business to banks that they viewed as safer.
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Wells said it expects to earn about $3 billion in the first quarter, which would be a record for the bank, but this is also the first earnings period to measure Wells combined with Wachovia. Still, the figure would blow away analysts' expectations of about $1.2 billion in profit for the combined bank, based on a survey of 20 analysts by Thomson One Analytics.
It would also be a huge improvement over the fourth quarter, when Wells lost more than $2.7 billion as it raised reserve levels to prepare for the Wachovia purchase. Those earnings would have been far worse if they had included Wachovia: The Charlotte bank lost $11 billion in the fourth quarter.
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