SAN FRANCISCO, NEW YORK and McLEAN, Va. — As Wells Fargo Financial, Capital One Auto Finance and Chase Auto Finance recently released their third-quarter results, executives from these firms discussed how their companies have fared in light of challenges stemming from widespread economic and credit turmoil.

Beginning with Wells Fargo Financial — which offers real estate and auto financing as well as consumer and private-label credit cards — the division had $1.394 billion in quarterly revenues versus $1.373 billion a year ago.

Its provision for credit losses was boosted to $770 million, an 80-percent increase from the $427 million last year.

"Third quarter revenue of $1.39 billion was flat from a year ago. Pre-tax pre-provision income (i.e., revenue less noninterest expense) increased $72 million, or 11 percent, from a year ago," executives explained. "Average loans increased 3 percent from third quarter 2007. Non-interest expense declined 7 percent from third quarter 2007."

Continuing on, Wells Fargo Financial reported a loss of $33 million this quarter compared to a net income of $135 million in the same period a year ago.

According to officials, this reflected "higher credit costs, including a $162 million credit reserve build as a result of continued softening in the real estate, auto and credit card markets."

The division's average loans/lease were $67.5 billion, a 3-percent climb from 2007. Its auto finance receivables/operating leases were at $26.2 billion, a 14-percent softening from the same time frame of 2007.

"Although Wells Fargo Financial credit losses were elevated from historic norms in all of our portfolios because of current market stress on consumers, we continued to fare much better than industry averages due to previously implemented tightened underwriting standards in our real estate, auto and credit cards businesses that have enabled us to effectively manage risk," explained Tom Shippee, Wells Fargo Financial's chief executive officer.

"In our real estate-secured portfolio, those losses have been predominately concentrated in California, Florida, Arizona and Nevada, where 26 percent of our $29.2 billion portfolio is based," he went on. "In the first nine months of 2008, we have worked to reduce expenses during this difficult credit environment by consolidating our store network — closing 9 percent, or 86, of our U.S. stores — and also by reducing our full-time equivalent team member base by 14 percent, or almost 3,000 FTEs."

Added Dave Kvamme, Wells Fargo Financial's president and chief operating officer: "Losses in our auto portfolio increased this quarter, driven by a decline in used car values. Across all of our businesses, we continue to take actions to reduce credit risk and right-size our expense base."

Capital One

Moving on to Capital One, chairman and chief executive officer Richard Fairbank discussed the progress the firm made in the third quarter despite economic turmoil.

"Against the backdrop of increasing economic headwinds and unprecedented change in the financial services landscape, Capital One continues to deliver profits and generate capital," Fairbank stated.

"But we are not complacent," he added. "Based on what we're seeing in the world around us, we are significantly increasing the intensity of our efforts to aggressively manage the company for the benefit of investors and customers through the current downturn."

In its auto finance operations, the company posted net quarterly income of $14.5 million compared with $33.6 million in the previous period and a $3.8 million loss in the third quarter of 2007.

"Auto finance results in the quarter were driven by solid and stable revenue margin and operating efficiency, as well as a lower provision for loan losses as the overall portfolio continues to shrink as a result of the aggressive steps taken by the business to retrench and reposition the business at the beginning of 2008," executives explained. "Credit metrics in the short term will continue to be impacted by seasonality, the seasoning of earlier vintages and broader cyclical economic challenges."

Net charge-offs were at 5.00 percent, a 116-basis-point jump from the second quarter. Delinquencies climbed 170 basis points from the second quarter to 9.32 percent.

Originations for the quarter fell 55.5 percent to $1.4 billion, compared with $1.8 billion in the same period of 2007.

Managed loans came in at $22.3 billion, a 4.7-percent decrease from the previous quarter and a 8.3-percent drop from last year.


Finally, at JPMorgan Chase — parent company of Chase Auto Finance — chairman and chief executive officer Jamie Dimon anticipates that the company's challenges will continue, but offered several positive signs for the future. For instance, the firm acquired Washington Mutual during the quarter, which expands the company's presence to more than 5,400 branches.

"We expect the Washington Mutual transaction to create long-term value for shareholders while also being immediately accretive, adding 50 cents per share to earnings in 2009," Dimon commented. "In light of the unprecedented challenges and risks facing the housing market, we have incorporated expectations of significant credit losses from Washington Mutual's home-lending portfolio into the structure of the transaction. We also raised $11.5 billion of common equity to support the transaction and add to our already substantial capital base."

Dimon went on: "Given the uncertainty in the capital markets, housing sector and economy overall, it is reasonable to expect reduced earnings for our firm over the next few quarters. However, with a total loan loss allowance of $19 billion (including Washington Mutual) and an 8.9-percent Tier 1 capital ratio, we feel well-positioned to handle the turbulent environment and, most importantly, to continue to invest in our businesses and serve our clients well."

For its auto finance division, net income was $79 million, a 4-percent upswing from a year ago. Net revenues were $506 million, a 13-percent hike, "driven by higher loan balances and increased automobile operating lease revenue."

Moving on, the provision for credit losses was $124 million, an increase of $28 million, which reflected higher anticipated losses.

Officials also noted that the net charge-off rate was 1.12 percent, versus 0.97 percent in the same period of 2007. The company reported that non-interest expense was $252 million, a 13-percent incline spurred by "increased depreciation expense on owned automobiles subject to operating leases."

Loan originations fell 27 percent to $3.8 billion, mirroring the widespread weakness in auto sales. Average loans climbed 10 percent to $43.8 billion.