Oct. 15 (Bloomberg) -- Wells Fargo & Co., the California bank that's buying Wachovia Corp., said third-quarter profit topped analysts' estimates as the company picked up market share from collapsing rivals.

Net income fell 24 percent to $1.64 billion, or 49 cents a share, from $2.17 billion, or 64 cents, a year earlier, the San Francisco-based company said today in a Business Wire statement. Analysts expected profit of 43 cents, the average estimate in a Bloomberg survey. The bank's allowance for credit losses doubled to $8 billion from a year earlier.

The failure of IndyMac Bancorp in July and Seattle-based Washington Mutual Inc. last month allowed Wells Fargo, the biggest bank on the U.S. West Coast, to win deposits and borrowers. Chief Executive Officer John Stumpf kept Wells Fargo profitable amid record U.S. mortgage defaults, allowing him to snap up Wachovia after the Charlotte, North Carolina-based bank lost 90 percent of its value in a year.

``If you can look out 24 months into the horizon, the deal makes a great deal of sense for Wells Fargo,'' said Peter Sorrentino, who helps manage $16.7 billion at Huntington Asset Advisors in Cincinnati. ``Both the product mix and the geographic footprints are very complimentary,''

Wells Fargo shares rose $3.12, or 10 percent, to $33.52 yesterday on the New York Stock Exchange. The stock has gained 11 percent this year, the second-biggest advance, behind BB&T Corp., in the 24-company KBW Bank Index, which has tumbled 30 percent.

Mortgage-Related Losses

Losses are likely to increase after the $14.4 billion acquisition of Wachovia, which has been approved by the Federal Reserve. Wachovia was the biggest provider of option adjustable- rate mortgages, loans that are prone to default. While Wachovia brings branches along the East Coast, its loan portfolio includes option ARMs in California.

``With Wachovia they're going to double down on their California exposure and their mortgage portfolio,'' said Blake Howells, an analyst at Becker Capital Management, which oversees about $2 billion in Portland, Oregon. The company faces risks ``given their geographic profile and their product profile.''

The Bush administration said this week it will pay about $125 billion for stakes in nine major banks, including $25 billion in Wells Fargo. The investments are part of the U.S. Treasury's plan to spend $700 billion to unfreeze credit markets amid the worst financial crisis since the Great Depression.

California home prices tumbled a record 41 percent in August from a year earlier to the lowest since 2003, according to the Los Angeles-based California Association of Realtors. More than 101,000 households in the state received a default notice, were warned of a pending auction or foreclosed in August, RealtyTrac Inc. said on Sept. 12. That was a third of the nation's total.

California Loans

Still, Wells Fargo has grown while California lender Countrywide Financial Corp. was bailed out by Bank of America Corp. and IndyMac failed, as did WaMu, which did half its lending in the state.

Wells Fargo, whose biggest stakeholder is Warren Buffett's Berkshire Hathaway Inc., avoided most of the riskiest loans, including option-ARMs that plagued Wachovia and WaMu.

``Wells has never been seduced by the vagaries of the credit market,'' said Anat Bird, a former executive at the bank who now runs SCB Forums Ltd., a Granite Bay, California-based company that conducts peer group conferences for bankers. ``The company has always been incredibly disciplined.''

(To hear Wells Fargo's recorded earnings conference, call 1+866-519-1052 starting at 8:30 a.m. New York time.)

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.

Last Updated: October 15, 2008 08:05 EDT