Wachovia first-quarter profit rises 33 pct

NEW YORK (Reuters) - Wachovia Corp. WB.N, the fourth-largest U.S. bank, said on Monday first-quarter profit rose 33 percent, helped by commercial lending growth and the acquisition of mortgage lender Golden West Financial Corp.

Earnings topped the average Wall Street forecast despite narrower lending margins, higher credit losses and slower consumer loan growth.

Net income for Charlotte, North Carolina-based Wachovia rose to $2.3 billion, or $1.20 per share, from $1.73 billion, or $1.09, a year earlier.

Excluding merger costs, profit was $2.31 billion, or $1.20 per share, topping the analysts' average forecast by 4 cents per share according to Reuters Estimates.

"The main positive was very good cost control," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP. "There is (also) relative relief. Many people expected mortgage industry problems to translate into a shortfall because of Golden West. At the end of the day, Wachovia did better."

Wachovia shares rose 93 cents to $54.93 in morning trading on the New York Stock Exchange.

Revenue rose 17 percent to $8.24 billion, short of the average forecast of $8.55 billion, while non-interest expense increased 8 percent to $4.59 billion.

Compared with the fourth quarter, revenue fell 4 percent and expenses fell 7 percent. Wachovia plans this year to finish a cost-cutting drive that may save $1 billion annually.

Wachovia was accused of overpaying when it bought Golden West -- an adjustable-rate mortgage specialist and 285-branch thrift -- for $24.2 billion on October 1.

Like many rivals, the former Golden West has been reporting declining mortgage originations and increasing delinquencies as the U.S. housing market slows.

Still, Wachovia Chief Executive Ken Thompson said "the integration of Golden West is on track, and we're pleased with the cross-sell potential of our expanded mortgage platform."

MARGINS SHRINK

Wachovia now expects 2007 growth in lending income to be unchanged to up 2 percent, compared with its January forecast for low-single-digit growth.

It also expects mid-single-digit growth in consumer loans and low-double-digit commercial loan growth, reversing the percentages it had forecast in January.

First-quarter results benefited from a 10 percent increase in average commercial loans, which helped drive a 27 percent increase in lending income, Wachovia said.

Lehman Brothers Inc. analyst Jason Goldberg said the forecast for slower growth in lending income "likely reflects a lower than previously assumed net interest margin," which fell to 3.01 percent in the first quarter from 3.09 percent in the fourth quarter and 3.21 percent in the year-earlier first quarter.

The bank set aside $177 million for loan losses, nearly triple the year-earlier amount, attributing the increase to growth in auto lending, commercial lending and credit cards.

Goldberg nevertheless wrote, "Asset quality was fine."

Consumer and business banking profit rose 41 percent to $1.54 billion. Profit in corporate and investment banking fell 23 percent to $379 million. Earnings rose 42 percent to $304 million in capital management, and 11 percent to $65 million in wealth management. Assets rose 30 percent to $706.4 billion.

Through Friday, Wachovia shares had fallen 5 percent this year, compared with a 4 percent decline in the Philadelphia KBW Bank Index .BKX.