Santander, Wells Fargo offer hope as banks surge

MADRID/NEW YORK (Reuters) - SANTANDER (SAN.MC) in Europe and Wells Fargo & Co in the United States offered a glimmer of hope to shareholders in the stricken financial sector after both banks held their dividends steady.

Santander, the euro zone's largest bank, also reassured investors by not just staying in the black, but also reporting higher profits, while Wells Fargo lost money, but benefited from its assurances it will not need to tap government bailout funds.

The news came as bank shares rallied on optimism governments prefer to guarantee losses on assets, rather than take more stakes in banks, helped by reports the U.S. government would set up a bad bank to mop up the toxic assets of stricken lenders.

Richard Parsons, the recently-named chairman of Citigroup Inc , one of the biggest recipients of U.S. taxpayer funds so far, confirmed U.S. President Obama was looking at an "aggregator bank" that would take trillions of dollars of assets from banks.

"We're in a death spiral and it only gets worse if there's no intervention," he said in a speech in New York.

Parsons added he was speaking as a private individual and not on behalf of the bank.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, has floated the idea that her agency should manage such a bad bank, two industry sources told Reuters.

Bair contends the FDIC is best positioned to run such a government entity because it has years of experience disposing of the least-valuable assets of failed American banks, according to one of the industry sources who has direct knowledge of Bair's thinking.

An FDIC spokesman declined to comment directly.

Wells Fargo, the fourth-largest U.S. bank, soared as high as 32 percent, while the KBW Banks index <.BKX> gained 14.4 percent. In Europe, Deutsche Bank AG rose 22 percent as peers around Europe <.SX7P> rose by almost 12 percent.

Santander's surprise statement came a day after it announced compensation for losses linked to the alleged Bernard Madoff fraud.

The bank, with 2.3 billion euros ($3.1 billion) of client exposure to the scheme, tried to repair the damage on Tuesday, saying it would issue 1.38 billion euros in preferential shares to compensate customers.

The bank's stock jumped more than 13 percent as it unveiled 2008 recurrent net profit of 8.876 billion euros, up 9.4 percent from a year earlier, including a 500 million euro provision linked to Madoff.

Spain's market regulator told Santander to release 2008 profits ahead of the scheduled February 5 date to take into account the compensation package for losses linked to Madoff's alleged Ponzi scheme.

"Once again, Botin is the first," said Natalia Aguirre at broker Renta4 in praise of Santander chairman Emilio Botin.

"He's protecting the bank's reputation and business and also nips what could have turned into a very big problem in the bank."

WELLS FARGO, BofA SOAR

Wells Fargo, now the second largest U.S. bank by market value, is struggling to digest its recently acquired Wachovia subsidiary and it showed in its bottom line. Combined, the two banks reported a fourth-quarter loss of $13.72 billion as they set aside billions of dollars to cover sour mortgages and other bad loans.

But San Francisco-based Wells Fargo confounded speculation it would need more capital and might cut its quarterly dividend of 34 cents per share.

"They can grow even as other rivals are unable to lend," said Thomas Russo, a partner at Pennsylvania-based Gardner Russo & Gardner, which invests more than $3 billion and owns Wells Fargo shares. "They are also still on track with Wachovia and expecting significant savings."

But Wells Fargo was just one of several U.S. banks whose shares soared on hopes about the "aggregator bank.

Even Bank of America Corp , which has made mostly negative news recently as it was forced to resort to a government bailout to plug losses from its Merrill Lynch & Co takeover, rose 14 percent, and is now up nearly 50 percent from its year low touched earlier this month.

After the market closed on Wednesday, Bank of America expressed its backing for the institution's embattled chief executive, Kenneth Lewis, the mastermind behind the Merrill takeover. [nN28481155]

The board's support for Lewis reflects his experience in managing through a challenging environment and assimilating mergers, lead outside director O. Temple Sloan said in a statement. Some analysts had speculated that Lewis' days at the bank were numbered.

SPANISH SHIELD

While most of Europe reels from the effects of the financial crisis, Spanish banks have largely avoided being infected by toxic assets and analysts see direct government intervention as unlikely.

Governments in other countries such as Germany have been forced to intervene -- sources with knowledge of the matter have said Berlin is advancing toward the part-nationalization of stricken investment bank Hypo Real Estate Holding AG .

But a worsening domestic economy in Spain bodes ill for the future.

Soaring unemployment, by far the highest in the European Union, has resulted in growing loan defaults and some Spanish banks are putting aside more money to cushion themselves from what is expected to be the worst recession in 50 years.

Rival BBVA , Spain's second largest bank, said on Wednesday it would adopt a more prudent dividend policy to boost capital, averting the need for any future capital increase.

The shares of Britain's Lloyds Banking Group Plc led the day's rally, with a 50 percent surge after a leading analyst said fears it will be nationalized were overblown. Royal Bank of Scotland Plc shares leaped 36 percent and Barclays Plc rallied 19 percent.

France's BNP Paribas SA jumped 21 percent and Fortis NV rallied 12.8 percent after Fortis said it reopened talks with the Belgian government and BNP over the sale of assets, potentially clearing a path for a deal.

($1=.7544 euros)

(Additional reporting by Judy MacInnes, Karey Wutkowski, Jonathan Stempel, Dan Wilchins Paul Day and Jonathan Gleave; Editing by Mike Nesbit and Andre Grenon)

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