Wells Fargo Q4 net slides on home equity loss

By Jonathan Stempel

NEW YORK (Reuters) - Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz), the No. 2 U.S. mortgage lender, said on Wednesday fourth-quarter profit fell 38 percent, the first decline in more than six years, as more people missed payments on mortgages and home equity loans.

Shares, nevertheless, rose as much as 6.1 percent as the earnings decline was smaller than expected, while deposits and loans grew at a double-digit pace.

The results reflect how deteriorating housing and credit markets have affected even mortgage providers like Wells Fargo, whose lending practices are considered conservative.

Wells Fargo, the fifth-largest U.S. bank, set up a $1.4 billion reserve tied to home equity loans that went bad. Yet it has so far avoided the massive exposures to subprime and other risky loans that have caused big losses at rivals such as Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) and Merrill Lynch & Co (MER.N: Quote, Profile, Research, Stock Buzz).

"Except for the admitted slip of getting involved in third-party home equity loans, they've done a fine job in a challenging market in avoiding credit missteps," said Thomas Russo, who oversees more than $3 billion at Gardner, Russo & Gardner in Lancaster, Pennsylvania, including 4 percent in Wells Fargo shares.

Net income fell to $1.36 billion, or 41 cents per share, from $2.18 billion, or 64 cents, a year earlier. Revenue rose 8 percent to $10.21 billion.

Analysts, on average, expected profit of 39 cents per share on revenue of $10 billion, according to Reuters Estimates.

Wells Fargo tripled the amount it set aside for loan losses to $2.6 billion, including the home equity reserve. Net charge-offs rose 67 percent to $1.21 billion.