Wells Fargo Revenues Can?t Overcome Falling Profits

Wells Fargo & Co. (NYSE: WFC) announced fourth quarter and full year results today, showing a contrast of declining profits in the fourth quarter with record revenues for the year.

Fourth quarter net income fell 38 percent to nearly $1.4 billion, as its revenues rose 8 percent to $10.2 billion. For the year, Wells reported an 8 percent decline in net income to $8.1 billion on record revenues of $39.4 billion.

For both the fourth quarter and for 2007, non-performing loans were 0.70 percent of all loans, a rise of nearly 35 percent from 0.52 percent in the same period a year ago.

The fourth quarter 2007 provision for losses was $2.6 billion, including fourth quarter net charge-offs of $1.2 billion, a rise of more than 66 percent from $726 in the same period a year ago. The bank also set aside $1.4 billion for a “credit reserve build, largely for losses in the National Home Equity Group (Home Equity) portfolio, particularly in discontinued third party origination channels,” Wells reported.

Full year charge offs totaled more than $3.5 billion, up 57 percent from $2.25 billion in 2006. Wells Fargo has not been as hard hit by the free fall in the subprime sector as other major banks. It is a major home lender but its average borrower has a credit score of 725, a high rating.

The bank emphasized its glowing returns in its statements but acknowledged that economic prospects look grim.

“This is not the first economic downturn our industry has seen and it won’t be the last,” said President and CEO John Stumpf in a statement. “We expect the environment to remain challenging in 2008, particularly in the consumer sector.”

In the credit card portfolio, loans at year end that were 90 days or more past due totaled $402 million, up more than 53 percent from $262 million at year end 2006. Card receivables averaged $17.7 billion in the fourth quarter, up nearly 29 percent from a year ago.

Wells’ spent $298 million as its part Visa’s settlement with American Express to end an antitrust law suit.