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(AP) - Wells Fargo & Co. said Thursday that it swung to
a $2.83 billion loss in the fourth quarter as it took significant
charges to reduce its exposure to the risky assets of Wachovia
Corp. and built up its reserves to cover future losses.

      Shares soared more than 22 percent in early trading, adding
$3.58 to $19.77 - a sign that investors were pleased by the bank's
aggressive moves to clean up its balance sheet.


      "We wanted to make sure that as much of the risk of the balance
sheet as we could was reduced when we start on this new, wonderful
organization," said Chief Financial Officer Howard Atkins in an
interview with The Associated Press. 


While this hurt the bottom
line in the fourth quarter, Atkins said, it will have the effect of
strengthening the company going forward.


      During the quarter, Wells Fargo recorded a write-down of $37.2
billion related to high-risk loans in Wachovia's portfolio. This
reduces the need for future loan loss provisions, Wells Fargo said.


      While analysts and investors generally saw Wells Fargo's
acquisition of Charlotte, N.C.-based Wachovia as a good long-term
move for the bank, there had been some concern that Wachovia's
troubled loan portfolio would cause more problems than Wells had
originally anticipated.


      Wells Fargo had previously estimated $60 billion of cumulative
credit losses for the life of Wachovia's loan portfolio, and Atkins
said Wednesday that estimate has not changed. 


Following the $37.2
billion of losses set aside in the fourth quarter on the portfolio,
the bank has roughly $22.8 billion of write-downs remaining, which
it expects to record over a period of three years.
     

 For the final three months of the year, Wells Fargo reported a
net loss of $2.83 billion, or 79 cents per share, after paying
preferred dividends. This compares with earnings of $1.36 billion,
or 41 cents per share, a year earlier.


      The loss from Wachovia's operations totaled $11.17 billion for
the quarter. This compares with a third-quarter loss of $23.89
billion.


      The results included a write-down of $473 million on Wells
Fargo's securities portfolio and $413 million of write-downs on
other loans. 

The bank also took $294 million, or 5 cents per share,
of losses related to the Bernard Madoff fraud, and a $74 million
charge related to merger and integration costs.


      During the quarter, Wells Fargo built up its credit reserves by
$5.6 billion to cover future loan losses. This includes $3.9
billion to conform Wachovia's reserve build practices to its own.


      The provision for credit losses was $8.44 billion. This is more
than three times the provision of $2.61 billion recorded in the
prior-year quarter.


      Net interest income, or income generated from loans and
deposits, grew 23 percent to $6.72 billion from $5.49 billion.
Noninterest income from fees and other charges declined 34 percent
to $3.1 billion from $4.71 billion.


      "The underlying results were certainly challenging, but Wells
seems to be managing quite well," said Tom Kersting, a financial
services analyst at Edward Jones.


      Wells Fargo said it is one of the few banks that has continued
to lend during this difficult economic environment. "We're top of
the pack, frankly, in terms of that," Atkins said.
      

The bank extended $22 billion in new loans and originated $50
billion in new residential mortgages during the fourth quarter. And
core deposits increased 31 percent over the third quarter. 

Wells
also said both consumer and commercial depositors returned to
Wachovia during the fourth quarter following the announcement of
the acquisition.


      Though Wachovia had been struggling for some time, the rush to a
deal was sparked by a run on deposits in late September following
the failure of Seattle-based thrift Washington Mutual Inc. New
York-based Citigroup Inc. agreed to step in and buy Wachovia's
banking operations for $2.1 billion with the help of the Federal
Deposit Insurance Corp. 


But days later, Wells Fargo stepped in with
a higher bid - one that didn't hinge on any government support. The
government tried to mediate a deal in which Wells Fargo and
Citigroup would split Wachovia's assets, but the parties failed to
reach an agreement and Citigroup abandoned its bid.


      Originally, Wells Fargo's purchase of Wachovia was valued at
$15.1 billion, but declined in value to $11.8 billion in late
December as the price of Wells Fargo's shares dropped.


      The combination creates one of the largest U.S. banks, with more
than $1.23 trillion in assets and nearly $800 million in deposits,
and operations in 39 states and Washington, D.C.
      

Wells Fargo's board has announced a dividend of 34 cents per
share. Many other banks have had to slice or eliminate their
dividends as they work to shore up capital. Analysts have
speculated that Wells Fargo may need to reduce its dividend
sometime this year.


      The bank also said it has no plans to request additional capital
from the government under the Treasury Department's capital
purchase program. Last fall, Wells Fargo received a $25 billion
investment from the Treasury under the government's $700 billion
financial bailout package.


 Under the plan, the government has
pumped $250 billion into banks through preferred stock purchases in
an effort to spur more-normal lending. But both Bank of America
Corp. and Citigroup have required additional investments from the
government as they struggle to offset rising loan losses.


      For the full year, Wells Fargo earned $2.84 billion, or 75 cents
per share, compared with $8.06 billion, or $2.38 per share, in
2007.

Gallery

Business and Economic News

Wells Fargo & Co. said Thursday that it swung to
a $2.83 billion loss in the fourth quarter as it took significant charges to reduce its exposure to the risky assets of Wachovia Corp. and built up its reserves to cover future losses.

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