Wells Fargo Leads Bank Stock Charge

Wells Fargo led U.S. bank shares to big gains Wednesday after reporting a surprisingly high profit and increasing its dividend.

The KBW Bank Index was up 14.7 percent in late afternoon trading, its largest gain in at least 15 years, while the KBW Regional Bank Index was up 12.6 percent.

Both recovered well over half their July losses.

The broader Standard & Poor's 500 index was up better than 2 percent, aided in part by a more-than-$4-per- barrel decline in oil prices.

Wednesday's gains came after Wells Fargo, the nation's fifth-largest bank and second-largest mortgage lender, posted second-quarter profit of $1.75 billion, or 53 cents per share.

Though profit fell 23 percent from a year earlier, it topped the average analyst forecast for earnings of 49 cents per share.

The San Francisco bank also raised its dividend 10 percent at a time many rivals are lowering theirs. (See video for the CFO's details on earnings).

Wells Fargo shares rose as much as 31.7 percent.

"There's almost a feeling of relief out there," said Matt McCormick, an analyst at Bahl & Gaynor Investment Counsel in Cincinnati.

"There's a great deal of interest in financials turning the corner." Most major U.S. banks are scheduled to report results over the next week.

These include Bank of America , Citigroup , JPMorgan Chase , Wachovia and Washington Mutual , whose shares on Wednesday all posted high single- or double-digit percentage gains.

"Sentiment right now is very volatile," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

"What's taking place today is a market recovery driven by financials and a continued drop in oil prices." Wednesday's gains come in a terrible year for banks.

The sector has absorbed more than $400 billion of write-downs and credit losses since the global credit crisis began a year ago.

Through Tuesday, financial stocks comprised 12.9 percent of the market value of the S&P 500, down from 16.7 percent at year end and 20.8 percent at the end of June 2007, according to Reuters data.

The KBW Bank Index had fallen 45.3 percent this year.

Chris Hagedorn, who helps invest $21.4 billion at Fifth Third Asset Management, said investors viewed Wells Fargo as a high-quality lender that can benefit from market stress.

He also said they were pleased with results, given that the bank set aside $3 billion for credit losses.

"A large reserve build strengthens a bank's financial position, which is what the market wants to see," he said.