(Adds comments from analysts, executives, detail on housing
market; updates prices)
By Peter Rudegeair and Anil D'Silva
April 11 Wells Fargo & Co, the biggest
U.S. mortgage lender, reported a higher-than-expected 14 percent
rise in first-quarter net profit, as a series of cost cuts and
one-time gains helped the bank offset the lowest volume of home
loans it made in five-and-a-half years.
The bank, the most profitable in the United States in 2013,
has been hurt in recent quarters by declining demand for
mortgage refinancing, as lending rates have risen.
Income from mortgage banking fell by 46 percent to $1.5
billion from the same quarter last year. Wells Fargo's new home
loans fell by two-thirds to $36 billion in the quarter from $109
billion a year earlier, the lowest since the third quarter of
2008, when the housing market was under heavy stress.
But a series of one-time items this quarter helped offset
much of the decline in the mortgage business. Wells Fargo
recorded $847 million in gains on its equity investments, about
7.5 times the $113 million it earned a year earlier.
Its tax bill was also $227 million lower as it booked a $423
million benefit from resolving prior disputes with state tax
authorities. Overall operating expenses fell 4 percent as it
spent less on employee benefits and incentive compensation.
Another boost to net income came from the bank dipping into
funds set aside to cover soured loans, as the housing market and
the overall economy stabilized. The bank released $500 million
from these reserves, higher than the $200 million a year ago but
less than the $600 million released in the fourth quarter.
Without many of these one-time gains, Wells Fargo's results
would have missed Wall Street's estimates, according to
Citigroup Inc banking analyst Keith Horowitz.
JPMorgan Chase & Co, the biggest U.S. bank by
assets, reported Friday profits fell 19 percent from a year
earlier thanks to weaker-than-expected bond trading and mortgage
Wells Fargo's shares rose 1.5 percent in afternoon trading
at $48.41. JPMorgan Chase shares fell 3.3 percent to $55.48. The
KBW index of bank stocks was down nearly 1 percent.
Net income for Wells Fargo's common shareholders rose to
$5.60 billion, or $1.05 per share, in the quarter, from $4.93
billion, or 92 cents per share, a year earlier.
Analysts on average had expected the bank to earn 97 cents
per share, according to Thomson Reuters I/B/E/S.
"Wells always finds a way to figure it out," said Jason
Goldberg, a banking analyst at Barclays. "This is a company that
consistently puts up better-than-peer results."
'A DIFFERENT COMPLEXION'
Chief Financial Officer Tim Sloan told Reuters that being
able to benefit from occasionally outsized equity gains and tax
benefits spoke to the strength of being a diversified
institution with many distinct business lines.
"Unless your revenue sources were exactly like the prior
quarter where every business increased by same percentage,
someone will say that's not sustainable," he said. "Every
quarter has a different complexion."
There were some indications in Wells Fargo's results that
mortgage banking might be rising out of the doldrums. The bank
had $27 billion of mortgage applications in the pipeline at the
end of the quarter, up slightly from $25 billion at the end of
the fourth quarter. Chief Executive John Stumpf told analysts on
a conference call that "the housing recovery remained on track
and should benefit from the spring buying season."
Wells Fargo's loan book also showed signs of life. Total
lending rose 4 percent to $826.4 billion thanks to a 7 percent
increase in commercial and industrial loans and an 11 percent
increase in auto loans since the first quarter of 2013.
At the same time, the company is experiencing historically
low loan losses. Its net charge-off rate was 0.41 percent in the
latest quarter, versus 0.72 percent a year ago. It lost a mere
$5 million on its $381.3 billion commercial loan portfolio.
Total revenue fell 3 percent to $20.6 billion from $21.3
billion a year earlier. Between $120 million and $130 million of
that decline could be attributed to the first quarter having two
fewer days, Sloan told analysts on the conference call.
Wells Fargo's net interest margin, a measure of the
profitability of its loans, fell to 3.2 percent from 3.49
percent a year earlier and 3.27 percent in the fourth quarter.
The bank received regulatory approval in March to increase
its quarterly dividend to 35 cents from 30 cents and to
repurchase an additional $17 billion of stock, or about 6.5
percent of the total outstanding.
(Reporting by Anil D'Silva in Bangalore and Peter Rudegeair in
New York; Editing by Ted Kerr and Nick Zieminski)