Thursday, January 29, 2009

Santander, Wells Fargo Offer Hope as Markets Surge

Banco Santander in Europe and Wells Fargo in the United States offered a glimmer of hope to shareholders in the financial sector after both banks held their dividends steady.

Santander, the euro zone's largest bank, also reassured investors by not just staying in the black, but also reporting higher profits, while Wells Fargo lost money (part of the loss can be attributed to adding $5.6 billion to its reserves to cover future loan losses and prepare to absorb Wachovia and $294 million in charge-offs relating to the alleged fraud of money manager Bernard Madoff), but benefited from its assurances it will not need to tap government bailout funds.

The news came as bank shares rallied on optimism governments prefer to guarantee losses on assets, rather than take more stakes in banks, helped by reports the U.S. government would set up a bad bank to mop up the toxic assets of stricken lenders.

Richard Parsons, the recently-named chairman of Citigroup, one of the biggest recipients of U.S. taxpayer funds so far, confirmed U.S. President Obama was looking at an "aggregator bank" that would take trillions of dollars of assets from banks.

Sheila Bair, chairman of the Federal Deposit Insurance Corp (FDIC), has floated the idea that her agency should manage such a bad bank, two industry sources told Reuters.

Bair contends the FDIC is best positioned to run such a government entity because it has years of experience disposing of the least-valuable assets of failed American banks, according to one of the industry sources who has direct knowledge of Bair's thinking. An FDIC spokesman declined to comment directly.

Wells Fargo, the fourth-largest U.S. bank, soared as high as 32%, while the KBW Banks index gained 14.4%. In Europe, Deutsche Bank rose 22% as peers around Europe rose by almost 12%.

Santander's surprise statement came a day after it announced compensation for losses linked to the alleged Bernard Madoff fraud.

The bank, with 2.3 billion euros ($3.1 billion) of client exposure to the scheme, tried to repair the damage on Tuesday, saying it would issue 1.38 billion euros in preferential shares to compensate customers.

The bank's stock jumped more than 13% as it unveiled 2008 recurrent net profit of 8.876 billion euros, up 9.4% from a year earlier, including a 500 million euro provision linked to Madoff.

Spain's market regulator told Santander to release 2008 profits ahead of the scheduled February 5 date to take into account the compensation package for losses linked to Madoff's alleged Ponzi scheme.

"Once again, Botin is the first," said Natalia Aguirre at broker Renta4 in praise of Santander chairman Emilio Botin. "He's protecting the bank's reputation and business and also nips what could have turned into a very big problem in the bank."

Wells Fargo, BofA Soar

Wells Fargo, now the second largest U.S. bank by market value, reported $116 billion in new mortgage applications in the fourth quarter, up 40% from the third quarter. Of the $116 billion, $37 billion was for new-home purchases, and "that could be a sign" of the housing market "getting closer to a bottom," said Wells Chief Financial Officer Howard Atkins.

Wells Fargo was just one of several U.S. banks whose shares soared on hopes about the "aggregator bank."

Even Bank of America, which has made mostly negative news recently as it was forced to resort to a government bailout to plug losses from its Merrill Lynch takeover, rose 14%, and is now up nearly 50% from its year low touched earlier this month.

After the market closed on Wednesday, Bank of America expressed its backing for the institution's embattled chief executive, Kenneth Lewis, the mastermind behind the Merrill takeover.

The board's support for Lewis reflects his experience in managing through a challenging environment and assimilating mergers, lead outside director O. Temple Sloan said in a statement. Some analysts had speculated that Lewis' days at the bank were numbered.


The shares of Britain's Lloyds Banking Group led the day's rally, with a 50% surge after a leading analyst said fears it will be nationalized were overblown. Royal Bank of Scotland shares leaped 36% and Barclays rallied 19%.

France's BNP Paribas jumped 21% and Fortis NV rallied 12.8% after Fortis said it reopened talks with the Belgian government and BNP over the sale of assets, potentially clearing a path for a deal.

Sources: Reuters, The Wall Street Journal

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