US banking giant Wells Fargo projected on Thursday a “record” US$3 billion profit in the first quarter, sparking hopes of recovery from a financial crisis that is battering the economy.
The bank said “it expects to report record net income of approximately US$3 billion for first quarter of 2009,” thanks in part to a stronger than anticipated performance by its new unit Wachovia.
Wells Fargo also said it expects earnings per share of about US$0.55, much better than analysts’ consensus forecast of US$0.23.
MOMENTUM
“Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group,” Wells Fargo chief executive John Stumpf said.
The upbeat guidance sent Wells Fargo shares flying, lifting other major banks with it and producing a powerful Wall Street rally that capped a holiday-shortened week. The market was closed yesterday.
Wells Fargo soared 31.70 percent to US$19.61 while Bank of America was up 35.27 percent to US$9.55 and Citigroup by 12.59 percent to US$3.04.
“Investors, always concerned about the banks and whether they are beginning to recover, should get a boost today from Wells Fargo,” said Frederic Dickson, chief market strategist of DA Davidson & Co.
Briefing.com analysts said in a client note that Wells Fargo “raises the bar for its peers” and provides leadership to the broader market “as many investors hold to the notion that a broader market recovery will come on the back of a rally in financials.”
‘HOPEFUL SIGN’
Investors see the Wells Fargo outlook “as a hopeful sign that the sector is turning the corner from the worst of times,” Briefing’s Patrick O’Hare said.
Also lifting sentiment on the sector was a New York Times report that all 19 banks, including Wells Fargo, would pass federal regulators’ ongoing “stress test” about their viability, citing officials involved in the examinations.
Wells Fargo said it expected revenue to climb 16 percent in the first quarter to US$20 billion, with 40 percent of the increase due to sales from its newly acquired Wachovia bank.
“Wachovia’s outstanding franchise has proven to be everything we thought it would be when we announced this acquisition and the financial contribution from Wachovia exceeded our expectations in the first quarter,” Stumpf said.
Wells Fargo’s cautious management has left the bank relatively unscathed in the collapse of the real-estate boom that began in 2006. For the full year last year, Wells Fargo had posted profit of US$2.84 billion, a drop of 65 percent.
The company will report its first-quarter financial results on April 22.
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