All’s well at Wells Fargo? Bank reports record profit

The report is a good indicator for the overall economy.

NEW YORK (AP) — Are banks back?

No big bank was supposed to utter the words “record” and “profit” in the same sentence this year. But Wells Fargo said Thursday it earned about $3 billion for the first quarter — its highest income ever, and twice what analysts predicted.

The unexpected peek into the bank’s official results, which will be released in two weeks, was a welcome sign of improvement in one of the most troubled and critical industries in the U.S. economy.

Money is cheap and mortgage applications are surging, thanks in large part to unprecedented efforts in Washington to breathe life back into the financial industry. The government has been pumping money into the financial system, slashing interest rates and buying and guaranteeing more types of assets than ever before. As a result, cash poured into Wells Fargo & Co. and loans streamed out, indicating a strong pickup in the most important source of business for any bank.

Other banks across the country are likely gaining, too, from near-zero borrowing costs and the resuscitation of the mortgage business. If more banks see a similar burst in business offset their loan losses, the panic over the fate of the banking industry that upended the stock market in the past year could dissipate.

“The mind-set is: The banks cannot do well,” said Richard Bove, banking analyst at Rochdale Securities. “But the banks are in a stronger position than anyone expected.”

Wells Fargo’s surprise profit is also another good indicator for the overall economy. Stocks soared on the news Thursday — not just banks, but also technology, home-building and transportation companies. That’s because if banks are stable, more loans can be made. And when people can borrow, they can spend.

Most analysts are still predicting quarterly losses for banks such as Citigroup Inc. and Morgan Stanley, which also release their results later this month. They will likely be weighed down by the souring debt and exotic credit products on their books that have gotten into trouble.