Wells Fargo soars despite huge loss; capital sound

By Jonathan Stempel

NEW YORK (Reuters) - Wells Fargo & Co shares soared on Wednesday as the bank reassured investors by maintaining its dividend and saying it does not need more money from the federal government despite a massive quarterly loss.

The bank and its newly acquired Wachovia Corp posted a combined fourth-quarter loss of $13.72 billion as they set aside billions of dollars to cover sour mortgages and other bad loans.

But Wells Fargo confounded speculation that it would need more capital and might cut its quarterly dividend of 34 cents per share.

"They can grow even as other rivals are unable to lend," said Thomas Russo, a partner at Pennsylvania-based Gardner Russo & Gardner, which invests more than $3 billion and owns Wells Fargo shares. "They are also still on track with Wachovia and expecting significant savings."

Wells Fargo said it remains comfortable with its original assumptions about Wachovia, which it bought for $12.7 billion on December 31, and expects the merger to eventually boost earnings per share by at least 20 percent.

The purchase created the nation's fourth-largest bank by assets, with $1.31 trillion, and the biggest branch network, with more than 6,600 branches.

Bank stocks rose broadly on optimism the government might soon create a "bad bank" to absorb toxic assets.

Industry sources said the idea is gaining steam with the Obama administration, and that Federal Deposit Insurance Corp Chairman Sheila Bair has floated the idea of her agency running such a bank.

In afternoon trading, shares of Wells Fargo were up $4.46 to $20.65 on the New York Stock Exchange. The bank's largest shareholder is Warren Buffett's Berkshire Hathaway Inc, according to Thomson ShareWatch.

"SIGH OF RELIEF"

Excluding Wachovia, Wells Fargo reported a fourth-quarter loss of $2.55 billion, or 79 cents per share, compared with a profit of $1.36 billion, or 41 cents, a year earlier.

The quarterly loss was San Francisco-based Wells Fargo's first since 2001. Revenue fell 4 percent to $9.82 billion.

Results reflected a $5.6 billion addition to its credit reserve, or 99 cents per share, bring the total reserve for credit losses to $21.7 billion.

They also include 21 cents per share from other charges, including a $294 million writedown from the alleged fraud by investment adviser Bernard Madoff.

Analysts, on average, expected profit of 32 cents per share, excluding items, on revenue of $10.96 billion, according to Reuters Estimates. Andrew Marquardt, an analyst at Fox-Pitt Kelton, estimated "core" profit at 12 cents per share.