WELLS FARGO STILL SHINES

July 16 (Bloomberg) -- Wells Fargo & Co., the biggest bank on the U.S. West Coast, reported second-quarter profit that topped analysts' estimates on record revenue, sending the shares up as much as 12 percent and buoying U.S. stock futures.

Net income dropped 23 percent to $1.75 billion, or 53 cents a share, from $2.28 billion, or 67 cents, a year earlier, the San Francisco-based bank said today in a statement. That beat the 50-cent average estimate of 21 analysts surveyed by Bloomberg. Revenue increased 16 percent to $11.5 billion.

Gains in credit card fees and insurance revenue softened the impact of bad home loans at Wells Fargo, which raised its quarterly dividend 10 percent. While earnings have declined for three straight quarters, Chief Executive Officer John Stumpf has kept the bank profitable even as Citigroup Inc. and Washington Mutual Inc. racked up losses and lenders Countrywide Financial Corp. and IndyMac Bancorp Inc. disappeared.

"They've got a nice balance of businesses,'' said William Frels, chief executive officer of Mairs & Power Inc., which manages $4.5 billion in St. Paul, Minnesota, and owns Wells Fargo shares. ``They're very well-managed.''

Wells Fargo jumped $2.47, or 12 percent, to $22.98 in early trading after falling 4.9 percent yesterday on the New York Stock Exchange. The shares dropped 32 percent this year through yesterday, compared with a 41 percent decline for the Standard & Poor's 500 Financials Index.

The company is the first of the five biggest U.S. banks to post formal second-quarter results. JPMorgan Chase & Co., ranked third, is scheduled to report tomorrow, and Citigroup, the industry's biggest, discloses earnings the next day.

Avoiding Subprime

Wells Fargo, the second-biggest U.S. mortgage lender, has said it avoided subprime loans, which caused more than 100 companies to close, be sold or halt operations since the beginning of 2007. Bank of America Corp. became the biggest home lender this month when it completed a rescue of Countrywide by purchasing the Calabasas, California-based company.

Last month, analyst Vivek Juneja of JPMorgan reduced his 2008 and 2009 profit estimates at Wells Fargo because of the likelihood of additional loan loss reserves. The percentage of loans no longer collecting interest rose to 1 percent from 0.8 percent in the previous quarter and 0.5 percent a year earlier.

The company set aside $7.52 billion for bad loans, compared with $6 billion at the end of March. The bank said in April that the $6 billion allowance was the highest in 10 years.

While profit is declining amid the mortgage crisis, Wells Fargo is diversifying by bolstering its insurance and credit cards units. In May, Wells Fargo bought Flatiron Credit Co., which finances insurance premiums, and the bank has been building its credit-card business.

Revenue Growth

Those areas provide ``the basis for continued revenue growth as the mortgage banking segment faces a tough market in 2008,'' wrote Standard & Poor's credit analyst Victoria Wagner, in a report last month. ``Wells Fargo's franchise is well managed and well-positioned.''

Insurance revenue climbed 27 percent in the quarter to $550 million and credit card fees rose 14 percent to $588 million, the company said.

Wells Fargo increased its quarterly dividend 10 percent to 34 cents a share. Competitors including Washington Mutual Inc. and Citigroup have slashed their payouts as losses mount.

Billionaire Warren Buffett's Berkshire Hathaway Inc. boosted its stake in Wells Fargo in the first quarter by 1.4 million shares to 290.7 million, according to data compiled by Bloomberg. The Omaha, Nebraska-based firm owns 8.8 percent of Wells Fargo, making Berkshire the biggest stakeholder, according to Bloomberg data.

California ranked second among U.S. states in June for foreclosures, with one filing for every 192 households, according to RealtyTrac Inc. Foreclosures nationwide increased 53 percent that month from a year earlier.

The world's biggest financial firms have reported more than $400 billion of losses and writedowns tied to the U.S. housing slump, according to Bloomberg data, with $4.9 billion coming from Wells Fargo.

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