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Wells Fargo Says It Expects More Loan Problems : Banks: The San Francisco institution and Security Pacific report much lower earnings for the second quarter.

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TIMES STAFF WRITER

Security Pacific Corp. and Wells Fargo & Co. reported sharply lower second-quarter earnings Tuesday because of rising problem loans, with Wells Fargo unexpectedly warning that its loan troubles could continue because of the uncertainties in the economy.

While the drop in earnings for the two California banks was expected, Wells Fargo’s disclosure of deeper problems surprised bank analysts and caused the San Francisco bank’s stock to fall sharply.

Separately, Citicorp, the nation’s largest bank, said its profit fell 83% to $43 million, also because of loan problems. Citicorp, which has been hurt by problem real estate loans and delinquent consumer loans, increased provisions for loan losses to $1 billion for the quarter from $473 million a year ago.

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The New York banking giant also disclosed that it has written off its $171-million loan to First Capital Holdings, a Los Angeles life insurance firm whose two main units have been seized by regulators in California and Virginia. But the loss was offset by $225 million in gains from the sale of securities and venture capital-related gains of $62 million.

In Los Angeles, Security Pacific posted a profit of $46.7 million, down 76% from $195.2 million a year ago. The bank, which indicated earlier this month that its earnings would fall sharply, said it is setting aside $409 million as a provision to deal with possible loan losses.

Security Pacific, the nation’s fifth-largest bank, has been hurt by the growing economic uncertainties in California, as well as the sagging economies in Great Britain and Australia. Security Pacific’s profit in the first six months was $143.2 million, compared to $383.6 million a year ago.

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In San Francisco, Wells Fargo, the nation’s 10th-largest bank, said it earned $14 million in the second quarter, a drop of 94% from $232 million a year earlier. Wells Fargo, prompted by a regulatory review, set aside $350 million largely for loans for leveraged corporate takeover deals.

Wells Fargo’s announcement included an uncharacteristically pessimistic statement from Chairman Carl E. Reichardt, who said the bank may need to set aside additional loan-loss reserves “because of continuing uncertainties in the economy and the banking environment.”

Wells Fargo’s stock, which soared Monday after Manufacturers Hanover Corp. and Chemical Banking Corp. disclosed they would merge, dropped $3.125 to $73.50 on the New York Stock Exchange after the earnings were disclosed.

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Wells Fargo’s earnings in the second quarter of last year included a $69-million gain, after taxes, resulting from the establishment of Wells Fargo Nikko Investment Advisors, Wells Fargo’s joint venture with Japan’s Nikko Securities. For the first six months, Wells Fargo earned $166 million, compared to $392 million for the first six months of 1990.

Also in San Francisco, Union Bank reported that its second-quarter profit was virtually flat at $36.5 million, compared to $36.3 million a year earlier. For the six months ending June 30, Union Bank’s profit was also flat at $71.3 million, compared to $70.9 million a year earlier.

Union Bank’s non-performing loans--those 90 days or more past due or where collection is doubtful--increased to $315 million in the quarter from $298 million. But net interest income rose to $197.8 million from $187.8 million a year earlier. Bank of Tokyo controls Union Bank.

Other banks reporting second-quarter results included:

* C&S;/Sovran, which is in merger discussions with North Carolina-based NCNB, reported net income of $64 million, compared to $79.8 million a year earlier. The bank, which has dual headquarters in Atlanta and Virginia, is continuing discussions with NCNB in a deal that could create the nation’s third-largest bank.

* Sumitomo Bank of California continued its string of profits, posting earnings of $12.6 million, up 14% from a year earlier. The San Francisco bank said it earned $26.4 million in the six-month period, compared to $20.87 million.

* Banc One, the big regional bank based in Columbus, Ohio, reported earnings of $131 million, up from $104 million in the same period last year. For the first six months of the year, earnings rose to $251 million from $205.8 million.

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* Mellon Bank Corp. of Pittsburgh reported earnings of $70 million in the second quarter, down from $142 million a year ago.

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