April 16 (Bloomberg) -- Wells Fargo & Co., the biggest bank on the U.S. West Coast, said first-quarter profit fell less than analysts estimated as the company limited losses from the decline in California home prices.

Net income dropped 11 percent to $2 billion, or 60 cents a share, from $2.24 billion, or 66 cents, a year earlier, the San Francisco-based company said today in a statement. Earnings included a $334 million gain from Visa Inc.'s initial public offering. Analysts were estimating Wells Fargo would earn 57 cents a share, according to a survey compiled by Bloomberg.

Wells Fargo was profitable even as competitors such as Wachovia Corp. and Washington Mutual Inc. posted losses because of the slumping West Coast housing market. The company is the nation's second-largest home lender behind Countrywide Financial Corp., which is selling itself to Bank of America Corp. after being crippled by bad home loans.

``This bank has the most conservative credit culture of any major bank and the strongest sales culture,'' said Robert Millen, a fund manager at Portland, Oregon-based Jensen Investment Management Inc., which held 3.3 million Wells Fargo shares as of Dec. 31. ``They've not gotten too much into these exotic instruments that are causing problems at so many other big banks.''

Revenue Gains

First-quarter revenue at Wells Fargo increased 12 percent to $10.6 billion.

Wells Fargo rose $1.20, or 4.3 percent, to $29.01 at 4:03 p.m. in New York Stock Exchange composite trading. The lender fell 18 percent during the past 12 months through, compared with the 31 percent drop of the 24-member KBW Bank Stock Index. Billionaire Warren Buffett's Berkshire Hathaway Inc. is Wells Fargo's largest investor with 289.3 million shares as of Dec. 31, or about an 8.8 stake, data compiled by Bloomberg show.

The bank set aside $2 billion for potential loan losses in the three months ended March 31. Net charge-offs, the cost of bad loans that won't be fully repaid, jumped to $1.53 billion from $1.21 billion in the fourth quarter. Charge-offs for consumer loans, which include credit cards, home-equity lending and automobile financing, rose 26 percent to $1.21 billion.

Wells Fargo's credit losses were worse than expected, particularly for small business lending and loans linked to the value of borrowers' homes, said Brian Foran, an analyst at Goldman Sachs Group Inc., in a note today.

Home-Equity Loans

The bank charged off $438 million of home-equity loans, a 58 percent increase from the previous quarter. Wells Fargo has home- equity loans of $83.6 billion outstanding, and customers were at least 60 days behind on 1.9 percent of the debt as of March 31, compared with 1.7 percent at the end of 2007.

The bank's $6 billion allowance for credit costs is at its highest level in 10 years, Chief Financial Officer Howard Atkins said in an interview. ``We believe that is adequate,'' he said.

Wells Fargo's net interest margin, the difference between what the bank pays customers for deposits and what it earns on loans, increased to 4.69 percent from 4.62 percent in the fourth quarter. The company's Tier 1 capital ratio increased to 7.9 percent from 7.6 percent on Dec. 31. Banks with ratios above 6 percent are considered well-capitalized.

Wells Fargo's 16.9 percent return on equity is among the highest of U.S. banks, giving it ``ammunition'' to grow without having to raise expensive capital like rivals such as Wachovia Corp. and Washington Mutual, Atkins said.

Wachovia, Washington Mutual

The company's first-quarter results compare with the $393 million loss reported by Wachovia, the fourth-largest U.S. bank, earlier this week. The loss, Wachovia's first since 2001 stemmed from writedowns of the values of its mortgage-backed securities and rising losses on California home loans. Washington Mutual posted a $1.14 billion loss.

JPMorgan Chase & Co., the third-biggest U.S. bank, said today that profit fell 50 percent after $5.1 billion of writedowns and provisions linked to subprime mortgages, bad home- equity loans and financing for leveraged buyouts.

Citigroup Inc. probably will post a first-quarter loss of $4.8 billion on April 18, according to the average estimate of analysts surveyed by Bloomberg.

Former Federal Reserve Chairman Alan Greenspan says the U.S. is facing the ``most wrenching'' credit crisis since World War II. The U.S. economy will expand 1.3 percent this year, the weakest performance since 2001, according to the median estimate of analysts surveyed by Bloomberg.

Foreclosure Filings

Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March as rates on adjustable mortgages rose and property owners were unable to sell or refinance amid falling prices, Irvine, California-based RealtyTrac Inc. said on April 15.

Wells Fargo is poised to take advantage of the decline in prices to make acquisitions this year, Chairman Richard Kovacevich said in a Feb. 20 interview. The bank spent $1.96 billion last year to buy Placer Sierra Bancshares and Greater Bay Bancorp to solidify its northern California business, adding more than $10 billion in assets. On Jan. 15, the company said it would buy the banking operations of United Bancorporation of Wyoming for an undisclosed amount.

Atkins wouldn't comment whether Wells Fargo's may bid for National City Corp., the Cleveland-based lender considering a sale. Analysts including Richard Bove of Punk Zeigel & Co. have cited Wells Fargo as a possible bidder for National City.

Looking for Acquisitions

``We prefer acquisitions that are smaller rather than larger and we also prefer opportunities where we are acquiring a good franchise rather than a broken franchise,'' Atkins said.

Wells Fargo is seeking opportunities to buy ``pieces of portfolios'' such as a deal announced yesterday to acquire about $560 million in deposits and loans in eight Nevada and California towns from Citigroup, Atkins said in a Bloomberg Television interview. Terms of that transaction weren't disclosed.

While Wells Fargo Chief Executive Officer John Stumpf has said the company would be interested in a federally assisted takeover of another bank, Atkins said recent capital raising by Wachovia and Washington Mutual suggest the industry is working through its problems without government involvement.

``They should be able to gain market share by selling more products or maybe through making more acquisitions,'' Jensen's Millen said. ``My biggest worry about Wells is they make a big, dumb acquisition, but I don't think that is going to happen.''

Wells Fargo is the No. 5 U.S. bank by assets and the second- largest mortgage lender after Countrywide. Bank of America, the second-biggest U.S. bank, is buying Calabasas, California-based Countrywide for about $4 billion in a transaction expected to close in the third quarter.

Market Share

Applications for mortgages increased 45 percent from the previous fourth quarter of 2007, and the bank made $61 billion in home loans. Wells Fargo is gaining market share after more than 100 mortgage companies suspended operations, closed or sold themselves since the start of 2007, Atkins said.

Visa's $19 billion initial public offering last month set a U.S. record. Shares of the company, the world's biggest credit- card network, have since advanced more than 40 percent. Banks including Regions Financial Corp. and M&T Bank Corp. also recorded gains related to the share sale.

Wells Fargo and other Visa members generally hold about twice as much Visa stock as they have already sold, and face restrictions on their ability to sell additional shares, Atkins said.

To contact the reporter on this story:
David Mildenberg in Charlotte, North Carolina, at 
  dmildenberg@bloomberg.net

Last Updated: April 16, 2008 16:34 EDT