Wells Fargo mortgage revenue drops, shares fall

Fri Jul 11, 2014 6:36pm EDT

The logo on a Wells Fargo bank building is seen in downtown San Diego, California March 18, 2014. REUTERS/Mike Blake

The logo on a Wells Fargo bank building is seen in downtown San Diego, California March 18, 2014.

Credit: Reuters/Mike Blake

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(Reuters) - Wells Fargo & Co, the fourth-largest U.S. bank, reported a 39 percent drop in mortgage revenue for the second quarter as lending volume dropped, underscoring the urgency for the bank to find other sources of income growth.

The bank managed to boost earnings and meet analyst estimates through gains from investments in stocks and bonds among other areas. But that income could be difficult to repeat in coming quarters, analysts said.

Meanwhile, the pressure on Wells Fargo's mortgage business, one of its largest sources of revenue for years, is continuing and intense. The bank's shares fell 0.4 percent to $51.58.

Overall U.S. mortgage lending volumes have been falling for 15 months as rates have risen, cutting into demand to refinance home loans. This spring was also a weak home buying season compared with last year's, Chief Financial Officer John Shrewsberry told investors on a conference call.

"The purchase market is softer than we thought it would be," Shrewsberry said.

But Wells Fargo's mortgage volume declines were greater than the overall market in percentage terms, according to the Mortgage Bankers Association's estimates. That may be because last year smaller banks were selling their loans to Wells Fargo, which in turn would package them into bonds to sell to investors under government programs, which counted as Wells Fargo's volume.

Many of those banks are now selling directly to investors under government programs, Chairman and Chief Executive John Stumpf said in an interview. The bank is the largest U.S. mortgage lender.

This is the first quarter since 2009 that Wells Fargo did not report an increase in earnings per share from the preceding quarter, ending a 17-quarter streak.

The second-quarter results reflect how hard a job Stumpf has in trying to boost revenue from other businesses.

Even as unemployment falls in the United States and the economy shows signs of recovery, loan growth has been tepid: the bank's loans, excluding pre-crisis assets it is winding down, rose just 2 percent in the second quarter from the first quarter.

Wells Fargo is the first of the major banks to post earnings, and rivals likely faced similar headwinds

Overall, Wells Fargo earned $5.42 billion, or $1.01 per share, in line with estimates from Thomson Reuters I/B/E/S. In the second quarter of 2013, the bank earned $5.27 billion, or 98 cents per share.

The rising U.S. stock market helped Wells Fargo in several ways. Its net gains from equity investments rose 121 percent to $449 million, while earnings from its wealth, brokerage and retirement business grew 25 percent to $544 million thanks in part to fees tied to higher market valuations.

Net gains from debt securities were $71 million compared with a loss of $54 million a year earlier.

Revenue slipped to $21.1 billion, from $21.4 billion in the second quarter of 2013, slightly beating expectations, according to Thomson Reuters I/B/E/S.

Wells Fargo made $47 billion of home loans, down from $112 billion a year earlier but up from $36 billion in the first quarter. Revenue from mortgage banking fell to $1.7 billion.

(Reporting by Peter Rudegeair and Tanya Agrawal; Editing by Ted Kerr and Steve Orlofsky)

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Comments (4)
JustProduce wrote:
Being that Wells Fargo would want to play nice with an administration that has decided to shoot at anything that moves within the banking system, I would be suspicious about their positive comments. So, here is what I do not get. When a public company stops growing either earnings or dividends, it typically means that they run out of the cash needed to inflate their financial picture. In other words, growth actually stopped a few periods ago and they have had to rob future earnings to fake the recent run up. So, considering this, how is it exactly that they are seeing signs of improvements? Stock pricing is a game that is played at the margins. Growth that has stopped is deadly and no CEO wants it. There is just no way that things seem better but not better enough for continued earnings growth. This may actually be the top. Consider yourself warned.

Jul 11, 2014 10:29am EDT  --  Report as abuse
CharlesReed wrote:
Name is Charles W Reed and Wells Fargo is only the leading mortgage lender through the crimes it commits, as this is coming from an ex-Wells Fargo Bank Mortgage Loan Officer who got a copy of the a Forgery Wells Fargo had created.

I saw the steering of customers no matter who you were, US Troops, White, Black, Hispanic, old or young, it made no different to the machine which has worked to put Wells as number one.

Even as Wells over the past 5yrs has paid settlement after settlement or OCC finding them, when your one of the only player in the game, and all the other big have plead deals on the table or as JPMorgan or mid-player in Sun Trust Bank have already accepted their deal, with only paying pennies on the dollars, these Families have made a deal you could not refuse! Crime does pay, and pays better that the best legal job!

Jul 11, 2014 11:11am EDT  --  Report as abuse
Bighammerman wrote:
The extra slow recovery is because of NoBama’s CHANGE and executive action. NoBama can’t work with anyone and that is why Congress is so lame and the world is so violent due to failed polices. Congress needs to remove NoBama from office now.

Jul 11, 2014 12:16pm EDT  --  Report as abuse
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