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Wells Fargo & Co. beat Wall Street estimates with a 20 per cent increase in fourth-quarter profit, boosted by improving credit quality and continued loan growth.

The San Francisco-based bank's profit increase contrasted with an 11-per-cent decline in profit at Citigroup Inc, which saw its capital markets business battered by the European debt crisis.

"Wells Fargo has a better business model for the environment we're in now because commercial lending is their biggest sector," said Jeffrey Sica, president of SICA Wealth Management in Morristown, New Jersey, which is generally negative on the banking sector.

"They're not overly involved in the trading activities that the other banks are involved in."

The fourth-largest U.S. bank by assets said it earned 73 cents (U.S.) per share. The average estimate from analysts was 72 cents per share, according to Thomson Reuters I/B/E/S.

Net income applicable to common shareholders in the fourth quarter was $3.89-billion, compared with from $3.23-billion, or 61 cents per share, a year earlier. For all of 2011, Wells posted net income applicable to common shareholders of about $15-billion, up from $11.6-billion in 2010.

The report came the same day that Citigroup Inc. posted net income of $1.16-billion, or 38 cents per share, down from $1.31-billion, or 43 cents per share, a year earlier. JPMorgan Chase & Co on Friday reported fourth-quarter net income of $3.72-billion, or 90 cents a share, down from $4.83-billion, or $1.12 a share, a year earlier.

Wells Fargo, which became a coast-to-coast bank with its 2008 purchase of Wachovia, recorded a loan-loss provision of about $2-billion, which was down from about $3-billion a year earlier. For the seventh straight quarter the bank reversed reserves the bank had previously booked for bad loans.

The so-called reserve release in the fourth quarter was about $600-million, down from $800-million in the third quarter. Chief credit officer Mike Loughlin said the bank expects additional releases in 2012, absent "significant credit deterioration in the economy."

The bank's total loans surged about $9.5-billion from the end of September to $769.6-billion at the end of December. The loan growth mirrored a trend shown in JPMorgan's results, a potential sign of an improving U.S. economy.

Wells said the planned run-off of loans in liquidating portfolios was more than offset by growth in a broad range of loan types. Loans made to businesses were a significant driver of the increase as the bank made more loans to existing and new customers.

Still, big banks are struggling to pad revenues at a time when low interest rates are making it difficult for them to earn money from loans and as new regulations curb fees they can charge for debit card use.

Wells reported total revenue of $20.6-billion, down from $21.5-billion a year ago but up from $19.6-billion in the third quarter.

Mortgage banking income increased to $2.4-billion in the fourth quarter, up from $1.- billion in the third, but down from $2.8-billion a year ago, as the bank benefited from an increase in home loan refinancings. Wells is the largest originator of home loans in the U.S.

The bank also posted a $430-million gain from trading activities, an improvement from a $442-million loss in the third quarter but down about $100-million from a year ago.

In a bid to improve profits, Wells Fargo, like other banks, has launched a wide-ranging efficiency program called Project Compass. Wells said fourth-quarter noninterest expense was up from the third-quarter as expected on higher seasonal expenses and mortgage-related costs. But the bank reiterated its goal of reducing quarterly expenses to about $11-billion by the end of this year, a reduction of about $1.5-billion.

Wells also said it purchased 27 million shares of its common stock in the fourth quarter, plus an additional 6 million shares through a transaction that will settle in the first quarter of this year.

"I'm extremely pleased with Wells Fargo's performance in 2011 - including strong deposit and loan growth, record cross-sell and record earnings," Chief Executive Jon Stumpf said in a statement.

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