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Wachovia's Net Income Up 13% on Loan Gains

The bank's stock falls on weak revenue and worries over its Golden West acquisition.

October 17, 2006|From Times Staff and Wire Reports

Wachovia Corp. reported a 13% increase in third-quarter earnings Monday on gains in business and automobile lending, but its stock fell on weak revenue and worries over its $24-billion purchase of Oakland mortgage lender Golden West Financial Corp., the parent of World Savings.

Charlotte, N.C.-based Wachovia, the fourth-largest U.S. bank, said profit was $1.88 billion, or $1.17 a share, up from $1.67 billion, or $1.06, a year earlier. Revenue climbed to $7.04 billion from $6.7 billion last year but declined from $7.26 billion in the second quarter. Analysts surveyed by Thomson Financial had expected $7.28 billion.

Shares of Wachovia fell $1.22, or 2.2%, to $55.25.

The earnings report underscored how rising short-term rates and relatively stable long- term rates have pinched banks' lending results -- the difference between the interest paid on deposits and the amount earned on loans.

"We are not happy with this quarter from a revenue standpoint," Ken Thompson, Wachovia's chairman and chief executive, said during a conference call. He added that he was "not panicky," saying earnings should improve unless the Federal Reserve resumes raising short-term interest rates.

The figures included expenses from Wachovia's $3.9-billion purchase this year of Irvine-based auto lender Westcorp but not the deal to buy Golden West. That acquisition, which gave Wachovia 285 new Western U.S. branches and a major presence in adjustable-rate mortgages, closed Oct. 1.

Golden West's quarterly profit increased 27% to $485 million, in part because of a major gain on securities related to its sale. But lending fell to $11.7 billion from $13.8 billion and loan delinquencies, while still low, increased.

Some analysts contend that Wachovia is overspending on a mortgage lender when housing is in decline. The concerns have been intensified because Golden West specializes in a riskier type of adjustable-rate mortgage known as the option ARM, which gives borrowers the option of paying less than the full amount of interest during the early years of the loan.

Punk Ziegel & Co. analyst Richard X. Bove, who contends option ARMs have stimulated a home-price bubble and may devastate borrowers when the teaser rates expire, downgraded Wachovia's stock Monday, citing the potential for Golden West to dilute earnings.

Wachovia is the first major U.S. bank to report quarterly results. San Francisco-based Wells Fargo & Co. reports today; Citigroup Inc. and Bank of America Corp. issue results Thursday.

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