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Wells Fargo Is America's Most Profitable Bank

Tickers in this article: JPM WFC

NEW YORK (TheStreet) -- Wells Fargo is the most profitable bank in America after the nation's largest mortgage lender reported record third-quarter earnings and its competitor JPMorgan posted a first quarterly loss under CEO Jamie Dimon.

Through the first three quarters of 2013, Wells Fargo reported $16.1 billion in net income, while JPMorgan reported about $12.5 billion in net income, hampered by a $7.2 billion after-tax third quarter increase to the bank's litigation reserve that wiped out the firm's quarterly profit. Those results reflect a high likelihood that Wells Fargo will end 2013 with industry leading profitability, a dramatic change in the U.S. banking sector.

As TheStreet noted in August, much of that would likely be attributable to JPMorgan's growing legal mess, as it resolves claims tied to a $6.2 billion trading loss, crisis-time acquisitions of Washington Mutual and Bear Stearns, and more recent probes into the firm's trading activities.

Still, Wells Fargo's rise to the top of the banking industry -- in terms of profitability -- should be no surprise to those who have watched the sector evolve in the wake of the financial crisis. It is quite a coup for a bank with a balance sheet about half the size of some of its larger competitors and one with a fairly small presence in risky but profitable Wall Street-oriented trading businesses.

The San Francisco-based lender has picked up the most share of any lender in the U.S. mortgage market since the crisis and it has used recent acquisitions such as Wachovia to bolster its presence in wealth management and investment banking activities. Importantly, the bank hasn't faced the amount of litigation and mortgage-related losses of larger competitors such as JPMorgan, Bank of America and Citigroup . Meanwhile, Wells Fargo remains one of the most over-reserved banks in the industry, an earnings tailwind in a flat economy, and its capital ratios allow for net share repurchases and dividend increases.

While Wells Fargo has posted consistent post-crisis profits, highlighted by 15 straight quarters of sequential earnings growth, Wall Street-oriented competitors have faced scores of litigation, trading losses and the general volatility that comes from dealing in capital markets. Importantly, the bank's earnings give a glimpse on how lenders across the U.S. can grow their earnings without taking on too much risk.