Oct 11 Profit at Wells Fargo & Co rose
by a better-than-expected 13 percent in the third quarter, as
the largest U.S. mortgage lender made up for a decline in that
business by releasing a large chunk of money it had set aside
for bad loans.
Home refinancings, which had boosted profits at Wells Fargo,
the fourth-largest U.S. bank, over the past few quarters, slowed
as anticipated, and many of its 89 other businesses did not
improve enough to pick up the slack.
An improving economy meant more people paid their bills and
the bank was able to release $900 million of reserves for credit
losses, its largest since the second quarter of 2011. Lower
write-offs of bad loans and lower personnel expenses also
boosted profits, it said on Friday.
Net income applicable to common shareholders rose to $5.32
billion, or 99 cents per share, from $4.72 billion, or 88 cents
per share, a year earlier. Analysts, on average, estimated Wells
Fargo would earn 97 cents per share, according to Thomson
Wells Fargo shares were down 1.3 percent at $40.89 in early
The bank made $80 billion in home loans, down from $139
billion a year earlier. That marked the smallest amount of
mortgages that Wells Fargo extended since the second quarter of
2011, when it made $64 billion. It also ended a streak of seven
consecutive quarters making over $100 billion in home loans.
Mortgage banking income fell 43 percent to $1.61 billion due
to fewer loans as well as diminished profit from selling
mortgages to investors. Within the business, income from
collecting payments on mortgages rose by over $300 million to
$507 million, while income from the business of making new loans
fell by $1.5 billion to $1.1 billion.
The profitability of selling mortgages fell to 1.42 percent
from 2.21 percent in both the third quarter of 2012 and the
second quarter of 2013. The bank had expected the margin to fall
to about 1.5 percent.
Rising interest rates crimped customer demand for mortgages
throughout the quarter. In early September, applications to
refinance home loans fell to their lowest level since November
For the week ended Sept. 27, 30-year mortgage rates fell to
4.49 percent from 4.8 percent in the week ended Aug. 23, after
the U.S. Federal Reserve opted not to curtail its bond-buying
program on Sept. 18, but there was little sign that Wells Fargo
would immediately benefit.
The bank had $35 billion in mortgage applications that it
had received but not yet processed at quarter-end, compared with
$63 billion at the end of the second quarter.
Higher revenues from other businesses helped to offset some
of the decline in mortgage banking. Trust and investment fees
rose to $3.28 billion from $2.95 billion a year earlier.
Wells Fargo's net interest margin, a measure of how
profitable its loans are, fell to 3.38 percent from 3.66 percent
in the same quarter last year and 3.46 percent in the second
quarter. An increase in deposits and long-term debt was
responsible for 75 percent of the decrease from the prior
Total revenue dipped to $20.5 billion from $21.2 billion a
year earlier, meaning that the higher profits were achieved
though cost savings and reserve releases.
The bank announced layoffs of about 5,300 employees in its
mortgage operation throughout the third quarter.
Earlier Friday, JPMorgan Chase & Co posted its first
quarterly loss under Chief Executive Jamie Dimon after a tangle
of legal and regulatory probes cost the biggest U.S. bank $7.2
(Editing by Dan Wilchins and Jeffrey Benkoe)