Wells Fargo & Co expects a decline in net interest margin, a key financial measure for banks, in the third quarter as low interest rates squeeze the money it makes from loans, Chief Financial Officer Tim Sloan said on Tuesday.
The decline could be similar to the third quarter of 2011 when the bank's net interest margin fell from the previous quarter by 17 basis points, Sloan said at an investor conference. A basis point is 1/100th of a percentage point.
In the second quarter, Wells Fargo, the fourth-largest U.S. bank, reported a net interest margin of 3.91 percent, unchanged from the previous quarter.
Sloan said the expected decline in the spread between what the bank pays depositors and what it makes on loans was due to lower variable income than in the previous quarter, the running off of higher yielding loans and securities as well as strong deposit inflows.
Wells executives in July had said the bank's net interest margin would remain under pressure. Sloan said the bank does not focus on managing its margin, concentrating instead on increasing earnings.
The bank has taken steps, however, that could soften the blow to the net interest margin, Sloan said. These include working to reduce the interest rates it pays account holders and redeeming certain trust preferred securities to reduce borrowing costs.
Wells also has the ability to increase loans by attracting new customers and by buying portfolios from other banks, he said. "We really don't look at the net interest margin and say, 'OK, how many loans do we have to grow?'" Sloan said. "We just want to go ahead and grow loans."
After Sloan's comments, Evercore Partners analyst Andrew Marquardt lowered his 2012 earnings estimate for the bank by 10 cents to $3.28 per share but said Wells Fargo stock remained his top pick among large banks.
Its shares were down 0.5 percent at $34.43.
CREDIT CARD ACQUISITIONS
While some banks have been shedding assets to build capital, Wells has been making acquisitions in the past year, buying up loan portfolios as well as smaller businesses that can be tacked onto its operations.
A report last week by an analyst at Susquehanna Financial Group suggested Wells should buy credit card company Discover Financial Services, and Sloan confirmed the bank's interest in expanding in this business, although he didn't discuss particular companies.
"We'll continue to look for good acquisitions in the credit card business, but we'd only do it if it made sense," Sloan said. "We don't feel like we need to do an acquisition in credit card to be able to grow the portfolio, but it could be nicely accretive (to earnings) if the right one comes along."
(Reporting by Rick Rothacker; Editing by Gerald E. McCormick, Leslie Adler and Kenneth Barry)