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Wells Fargo profit rises; credit losses up

• On Wednesday July 22, 2009, 8:18 am EDT

NEW YORK (Reuters) - Wells Fargo & Co (NYSE:WFC - News) on Wednesday said quarterly profit increased 47 percent as strong mortgage banking results and the acquisition of Wachovia Corp offset rising credit losses.

The San Francisco-based bank has been adding market share since buying Wachovia on December 31 and as rivals, including Countrywide Financial Corp, reduce risk or vanish.

Many analysts, though, have expressed worry that Wells Fargo will need to raise more capital to cover potential losses from real estate loans, including the option adjustable-rate mortgages it inherited when it bought Wachovia.

Despite getting $25 billion of federal bailout money, Wells Fargo was found under a federal "stress test" to have a $13.7 billion capital shortfall.

Second-quarter net income applicable to common shareholders rose to $2.58 billion, or 57 cents per share, from $1.75 billion, or 53 cents, a year earlier.

Before payment of dividends, net income rose 81 percent, the bank said. Revenue nearly doubled to $22.51 billion, with 39 percent of the total coming from Wachovia.

Results reflected per-share charges of 8 cents tied to helping replenish a federal deposit insurance fund, and 3 cents tied to merger and restructuring costs.

Chief Credit Officer Mike Loughlin said the bank expects credit losses and nonperforming assets to increase, despite "some moderation" in the rate of growth in some consumer portfolios.

Shares of Wells Fargo closed Tuesday at $25.35 on the New York Stock Exchange. Through Tuesday, they had fallen 14 percent this year, compared with a 19 percent drop in the KBW Bank Index (Philadelphia:^BKX - News).

(Reporting by Jonathan Stempel; editing by John Wallace)

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