Wells and U.S. Bancorp see some recovery

By Elinor Comlay

NEW YORK (BestGrowthStock) – Wells Fargo & Co (WFC.N: ) and US Bancorp (USB.N: ), two of the largest U.S. banks, said demand for some loans is rising and posted better-than-expected earnings on Wednesday.

The pickup in demand for certain loans — such as residential mortgages — means some banks might be doing better and winning market share even as business remains tough.

“The strong are getting stronger,” said Blake Howells, head of equity research at Becker Capital Management, which owns US Bancorp shares.

Losses for some types of loans also improved during the quarter, executives at both banks said.

Investment banking hurt bigger banks like JPMorgan Chase & Co (JPM.N: ) and Bank of America Corp (BAC.N: ), but US Bancorp and Wells Fargo have much smaller underwriting and trading businesses, which proved to be an advantage in the quarter.

“Main Street actually seems to be doing a little bit better than Wall Street this quarter, which is somewhat encouraging,” said NAB Research analyst Nancy Bush.

US Bancorp and Wells Fargo also benefited as cautious U.S. companies and consumers saved their money. The pair said their deposits increased more than 10 percent from a year ago.

Several other regional banks also reported results that beat Wall Street forecasts.

Shares in Wells Fargo climbed as much as 6.5 percent to $27.60, while shares in US Bancorp were up as much as 3.7 percent at $24. Shares slipped in afternoon trading, amid a broad market rout after Federal Reserve chairman Ben Bernanke said the U.S. economy faces “unusually uncertain” prospects.

LOAN DEMAND

If the pickup in borrowing were widespread, it would be good for the economy, but most of Wells Fargo’s rivals including JPMorgan and Bank of America have reported weak demand. Rising demand for loans from Wells Fargo likely means the bank is winning market share.

“The second quarter was a good quarter in terms of loan production,” Wells Chief Financial Officer Howard Atkins said in an interview. Demand was patchy and specific to certain areas such as auto, student and commercial lending, he said.

The San Francisco-based bank said mortgage applications rose 15 percent in the second quarter. U.S. Bancorp said its residential mortgages rose almost 2 percent from the first quarter and almost 12 percent from a year ago.

US Bancorp’s loan book grew 4 percent from the 2009 quarter as credit card issuance and residential mortgages increased, but it was down about 1 percent from the first quarter.

Wells Fargo said its average total loans sank 3 percent from the first quarter and 7 percent from last year.

Minneapolis-based US Bancorp said consumer loan demand rose, which likely means that it is winning market share.

US Bancorp and Wells Fargo got a boost to their loan portfolios and their deposits from acquisitions made in 2008.

CREDIT

While both banks suffered higher credit losses from a year earlier, these losses were down on the previous quarter.

“We believe credit quality has indeed turned the corner,” Atkins said.

Wells Fargo, citing improvement in home equity, consumer loan and credit card losses, cut the amount of money set aside to cover bad loans by about $500 million.

Bank of America, JPMorgan and Citigroup Inc (C.N: ) reported earnings last week that were similarly boosted by reserve releases after their credit costs eased.

Minneapolis-based US Bancorp did not release reserves and put aside $1.13 billion against further bad loans. (For a graphic of the banks’ loan reserves, click on: http://link.reuters.com/man78m)

Other banks said credit quality improved. Dallas-based Comerica Inc (CMA.N: ) beat Wall Street earnings estimates as credit losses fell.

Hudson City Bancorp Inc (HCBK.O: ) said profit rose 11.5 percent. “We believe the real estate markets are stabilizing,” Chief Executive Ronald Hermance said. High unemployment will continue to put pressure on the company’s loan book, he added.

Investment

(Reporting by Elinor Comlay. Additional reporting by Dan Wilchins and Maria Aspan; editing by John Wallace and Robert MacMillan)

Wells and U.S. Bancorp see some recovery