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By Peter Rudegeair and Tanya Agrawal
July 11 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
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,"
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
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.
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
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)