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Wells Fargo Fourth Quarter Profits Sink on Mortgage Woes

Wells Fargo fourth-quarter profits fell thanks to higher loan losses and charge-offs tied to the ongoing mortgage crisis that’s been dampening earnings industry-wide.

Wells Fargo said it earned $1.36 billion, or 41 cents per share, compared to $2.18 billion, or 64 cents per share, during the same period in 2006.

The results largely matched analyst expectations, but marked the banks’ poorest showing in seven years, when it earned just $1.18 billion.

“While we were not immune to the unexpectedly sharp and rapid downturn in housing, and our earnings were reduced in the fourth quarter by the $1.4 billion credit reserve build, primarily for home equity losses, we largely avoided the problems and costly asset write-downs many large financial institutions incurred,” said Chief Financial Officer Howard Atkins, in a statement.

Despite that, the San Francisco-based bank and mortgage lender saw record revenue growth of 8 percent to $10.21 billion from $9.41 billion a year ago.

Wells Fargo set aside $2.6 billion for home equity loan and other loan losses, including charge-offs of $1.21 billion, or 1.28 percent of average total loans, compared with $726 million (0.92 percent) in the fourth quarter of 2006.

“We largely avoided many higher-risk wholesale and consumer loan products and practices that are problematic to the industry,” said Chief Credit Officer Mike Loughlin.

“However, we did not fully appreciate the severity of the residential real estate downturn and its impact on our home equity portfolio, particularly our third party-originated, higher loan-to-value second mortgages.”

Here are some of the mortgage-related highlights from the quarterly report:

Mortgage originations of $272 billion in 2007, off 7 percent from a year ago
• Record $1.53 trillion mortgage servicing portfolio, up 12 percent from a year earlier
• 10 million servicing customers
• Mortgage application pipeline of $43 billion, down from $48 billion at December 31, 2006

Shares of Wells Fargo ended the trading session up 88 cents, or 3.32%, to $27.37 as investors seemed to applaud their conservative ways.

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