Wells Fargo profit up 17 percent; mortgage banking strong
(Reuters) - Wells Fargo & Co (WFC.N) reported a 17 percent increase in second-quarter profit Friday on strong mortgage banking income and improved credit quality.
The fourth-largest U.S. bank showed progress in reducing expenses but said it would not meet its cost-cutting target for the fourth quarter as it pays more compensation due to higher revenues.
The higher profits contrasted with results for rival JPMorgan Chase & Co (JPM.N), which reported an earnings decline after huge losses on risky derivatives trades.
Wells Fargo shares were up 1.4 percent to $33.30 in morning trading.
The largest U.S. home lender posted mortgage banking income of $2.9 billion, up from $1.6 billion a year ago and up slightly from the first quarter.
On Thursday the bank agreed to pay $175 million to resolve Justice Department allegations that it charged African-Americans and Hispanics higher rates and fees on mortgages during the housing boom. The bank said it was settling to avoid a long legal battle.
Wells Fargo said second-quarter net income was $4.6 billion, or 82 cents a share, compared with $3.9 billion, or 70 cents a share, a year earlier.
Analysts' average estimate was 81 cents a share, according to Thomson Reuters I/B/E/S.
The bank benefited in the quarter from the release of $400 million in reserves previously set aside for loan losses.
"Wells Fargo's strong financial results this quarter again reflect the benefit of our diversified business model," Chief Executive John Stumpf said in a statement.
Revenue was $21.3 billion, up from $20.4 billion a year ago. Expenses totaled $12.4 billion, down slightly from a year earlier.
The bank previously said it expected expenses to fall to $11.25 billion by the fourth quarter as part of an efficiency push. On Friday it said it would miss that target but expenses would continue to trend down.
It said it had record mortgage applications in the second quarter and ended the period with more unclosed loans in its pipeline than in the first quarter.
Operating losses, including litigation expenses, increased 22 percent from a year ago to $524 million, including the settlement announced on Thursday.
The bank also set aside more reserves to handle requests by government-backed entities that Wells Fargo buy back soured mortgage loans sold off during the housing boom. That expense, primarily for loans sold between 2006 and 2008, climbed to $669 million in the second quarter from $430 million in the first quarter.
Wells Fargo's total loans increased by $8.7 billion from the first quarter to $775.2 billion, boosted mostly by $6.9 billion in business and foreign loans acquired from BNP Paribas and WestLB. In the past year, the bank has been active in buying portfolios from retrenching banks that are selling assets to boost capital.
Wells Fargo said it purchased 53 million shares of its common stock in the second quarter and an additional 11 million shares through a transaction expected to settle in the third quarter.
Wells Fargo and JPMorgan Chase kicked off bank earnings season on Friday.
JPMorgan, the largest U.S. bank, reported net income of $4.96 billion, or $1.21 a share, including a $4.4 billion trading loss. That compared with $5.43 billion, or $1.27 a share, a year earlier. <ID: nL2E8ID1WY>
(Reporting By Rick Rothacker in Charlotte, North Carolina; editing by John Wallace)
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