Last year’s Wachovia acquisition contributed 39% of the Wells Fargo’s (WFC) record Q209 profits of $3.17bn. Wells posted the record profit even as its mortgage-related write-offs rose to $758m. The Q209 profit brings Wells’ profits for the first six months of 2009 to $6.22bn, up 66% from the first half of 2008. Earnings per share broke down to $0.57, up 8% from last year, which comes after a $700m credit reserve build, a $565m Federal Deposit Insurance Corporation special assessment and $244m in merger and restructuring-related expenses. Wells’ mortgage banking business saw a more than 8% annualized linked-quarter increase in revenue. The bank reported mortgage applications worth $194bn, up from $190bn in Q109. It originated $129bn home mortgages, up from $101bn the previous quarter. Wells Fargo reported it provided mortgage relief to nearly 1m customers through the Home Affordable Refinance Program (HARP) and other standard refinance programs (750,000 customers) and the Home Affordable Modification Program (HAMP) and bank’s own programs (200,00 modifications completed or in HAMP trial stage). Wells reported a combined $758m in write-off losses among single-family mortgages between its Wells Fargo and Wachovia banking entities, up $367m in the linked quarter. “The loss levels in our 1-4 family first mortgage portfolio increased as expected, in part due to increased loan modifications and the lifting of the foreclosure moratorium,” chief credit officer Mike Loughlin said in the quarterly report. “While we are seeing some encouraging signs of home sales in California, housing prices need to stabilize broadly before credit results in the mortgage portfolio will improve.” Wells has yet to apply to repay the $25bn it received as part of the government’s Troubled Asset Relief Program (TARP), but president and CEO John Stumpf addressed it in the report. “We intend to pay back the government’s investment in Wells Fargo on behalf of US taxpayers in a shareholder-friendly way,” he said in the report. “We will work closely with our regulators to determine the appropriate time to repay the funds while maintaining strong capital levels.” On the heels of the quarterly report, Fitch Ratings downgraded Wells’ long-term issuer default rating to double-A minus from double-A and moved the bank from rating watch negative to outlook stable. “On a consolidated basis, approximately 40% of [Wells’] loan portfolio is secured by residential first or second lien mortgages,” Fitch said in a statement on the ratings action. “Together with other consumer lending, approximately half of [Wells’] loan portfolio is exposed to US consumers, a borrower group that has been very negatively impacted by reduced home prices and high unemployment.” Write to Austin Kilgore.

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