- The Washington Times - Friday, April 10, 2009

Wells Fargo on Thursday became the fourth major bank to say it is enjoying record earnings in the first quarter, thanks to a mortgage refinancing boom, record low interest rates and a $25 billion cash infusion from taxpayers.

It was the latest in a series of signs that the economy may be stabilizing from its free fall and the banking crisis may be waning. Wells Fargo's surprise announcement - like similar announcements last month from Citigroup, JP Morgan and Bank of America - appeared aimed at spurring a big stock market rally. Wall Street responded with a 246-point gain, with bank stocks posting double-digit increases.

President Obama on Thursday hailed the drop in mortgage rates to record lows of about 4.6 percent, which boosted refinancings by 88 percent in March, and urged more Americans to seize the opportunity to lower their monthly payments. Wells Fargo, a top mortgage lender, attributed much of its improved earnings to $100 billion of new mortgages it made in the quarter.

“We are at a time where people can really take advantage of this,” the president said at the White House while seated among people who have refinanced.

He was touting his program for helping homeowners refinance mortgages held by Fannie Mae and Freddie Mac even if their home values have fallen a little below their loan totals. For consumers, “that is money in their pocket,” he said.

While the administration has rolled out programs to help banks and homeowners, most of the credit for record low interest rates goes to the Federal Reserve, which has driven down rates by purchasing hundreds of billions of Fannie Mae and Freddie Mac mortgage debt this year. The result has been a frenzy of refinancings that has stirred hopes that the extra money for homeowners will help to arrest a collapse in consumer spending and the broader economy.

The unexpectedly good performance of the nation's major banks also has nurtured hopes that the economy is bottoming, only months after many seemed to be on the brink of failure and in need of government infusions to stay afloat. Wells Fargo was among nine major banks that the Treasury gave up to $25 billion in funding last fall, although the bank said at the time that it didn't need or want the money.

“Calling the end has been an exercise in painful futility” for economic forecasters, said Antony Currie, an analyst at Breakingviews.com, but Thursday's news from Wells Fargo “is encouraging,” particularly because the bank deducted more than $3 billion in losses on souring loans and still came up with a record profit of $3 billion.

The bank said it also is prospering from paying practically nothing for the funds it borrows, while it is nearing the end of charge-offs for more than $100 billion of souring loans it took on when it acquired Wachovia last year.

“Of course, even if the banking crisis is over,” said Mr. Currie, “the worst recession in decades will bring more pain.”

Stock investors have been elated in recent weeks by signs of stabilization in the banking sector and the economy, sending stocks up by 25 percent in a March rally that was the strongest in decades.

Adding to signs of an economic plateau Thursday were reports of a drop in weekly new jobless claims and a plunge in the trade deficit to a nine-year low.

The record seven-month decline in the trade deficit to half its former high led economists to conclude that the free fall in the economy lessened during the first quarter. They now project that economic output fell less than 5 percent during the quarter, compared with the 6.3 percent drop seen in the final quarter of 2008. A small increase in exports, combined with the dramatic drop in imports, will lessen the blow to economic growth, they said.

Still, with industrial production and the job market still in collapse, Harm Bandholz, an economist at Unicredit Markets, said he does not expect the economy to “finally stabilize” until the second half of the year.

Lawrence H. Summers, director of the White House National Economic Council, agreed with that assessment in remarks to the Economic Club of Washington on Thursday.

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