CHARLOTTE -- Wachovia on Friday said second-quarter profits surged 24 percent, but that jump brought little cheer to investors.
Worried about the interest rate climate and potential loan problems, they sent the bank's shares down more than 3 percent to $49.98, a 52-week low. Most banks and brokerages also saw stock declines.
Aided by its acquisition of Golden West Financial, the Charlotte bank reported record net income of $2.34 billion, or 1.22 per share, compared to $1.89 billion, or $1.20 per share last year. Excluding merger-related charges, Wachovia beat the estimate of analysts polled by Thomson Financial by a penny per share.
Because Wachovia acquired Golden West on Oct. 1, the bank's earnings did not include numbers in the prior year for the mortgage specialist. Counting those earnings, Wachovia's profits were up just 4 percent.
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The report capped a busy week for bank earnings. Charlotte's Bank of America on Thursday said second-quarter profits rose 5 percent to $5.76 billion. On Friday, New York-based Citigroup said net income climbed 18 percent to $6.23 billion.
Wachovia's tough day on Wall Street came despite an extensive effort by executives to downplay fears about the industry's current boogeymen: exposure to subprime mortgages, rising loan defaults and troubled financing for private-equity buyouts. In a conference call with analysts, they said none of these posed a major threat.
"I would have thought there would have been a sense of relief," Chief Financial Officer Tom Wurtz said in an interview. "Essentially, we took (those issues) off the page for investors."
The bank's total revenue increased 20 percent to $8.7 billion from last year, but it was up just 6 percent when compared to combined numbers. Fee income -- including a $250 million boost from the company's investments in buyout deals -- fueled the rise, while income from interest declined slightly when counting Golden West's numbers.
Bank revenues, in general, have been crimped in recent quarters by a difficult interest rate environment. Wachovia's net interest margin -- essentially the spread between what it makes on loans and pays out on deposits -- declined to 2.92 percent from 3.01 percent in the first quarter.
Nonperforming loans -- or loans in which borrowers are struggling to repay -- increased to a total of $2.1 billion, up from $1.7 billion in the first quarter. But those troubled assets still equated to just 0.48 percent of total loans, up from 0.41 percent in the first quarter.
"With only an uptick in nonperforming assets, credit quality appears benign and has not emerged as a concern, in our opinion," Friedman, Billings, Ramsey analyst Gary Townsend wrote in a research report Friday.
He expected the stock to fall, though, because the investing gains were higher than usual and because of the lowered estimate for interest income.
Wachovia's shares have been hurt in the past year by interest rate conditions as well as its purchase of Golden West, which increased exposure to the slumping mortgage market. The bank's stock is down nearly 16 percent since it announced the deal in May of 2006.
Investors, though, got some good news Friday about the acquisition. The bank originated $19.2 billion in mortgages during the quarter, up from $18.3 billion in the first quarter. Wachovia also sold 37,000 net new checking accounts in former Golden West branches.H6Earnings Notes
In the midst of its planned acquisition of brokerage A.G. Edwards Inc., Wachovia said it recruited more than 100 new financial advisers. The bank also confirmed that it was offering retention packages to its own brokers as well as A.G. Edwards' as it prepares for the integration of the firms.
Wachovia said it set up a bank in Ireland to handle its capital markets business in Europe. The country has been a draw for financial services firms because of an attractive regulatory and tax environment, chief financial officer Tom Wurtz said.
The bank's overall employment stayed around 110,000 despite the addition of about 1,000 employees in the general bank division, which added to its West Coast workforce. Wachovia had some reductions in other parts of the bank but wasn't making any major cuts, Wurtz said.