March 29, 2024

DealBook: Wells Fargo Profit Jumps 24% in Quarter, Driven by Mortgage Gains

Wells Fargo

8:46 a.m. | Updated

Wells Fargo on Friday reported $5.1 billion in profit for the fourth quarter, a 24 percent increase, driven by the bank’s lucrative mortgage business.

Seizing on low-interest rates that have spurred a flurry of refinancing activity, the San Francisco-based bank again notched record profits. For the last 12 quarters, profits at the bank have increased.

In this latest quarter, Wells Fargo reported earnings of 91 cents a share, which exceeded analysts’ expectations. Ahead of the report, analysts polled by Thomson Reuters estimated that the bank would report earnings of 89 a share.

Wells Fargo, unlike many of its rivals, has been able to steadily increase its revenue. Launching bank earnings season, Wells Fargo reported $21.95 billion in revenue in the fourth quarter, up 7 percent from a year earlier.

Much of the revenue gains stemmed from the bank’s consumer lending business, as borrowers jumped on record low interest rates to refinance their mortgages. Wells Fargo, which dominates the market as the nation’s largest mortgage lender, notched $125 billion in mortgage originations, up from $120 billion in the fourth quarter of 2011. Refinancing applications accounted for nearly 75 percent of that total.

The big profits in the group came from the extra money that Wells Fargo makes bundling the mortgages into bonds and selling them to the government. In the fourth quarter, the bank reported $2.8 billion of so-called net gains on its mortgages activities, up 51 percent from the previous year.

Under the tenure of its chief executive, John Stumpf, Wells Fargo has aggressively expanded into the mortgage market, a strategy that might help the bank surpass its rivals in profits, notably JPMorgan Chase.

Wells Fargo’s net interest margin, a closely watched profits metric that measures the difference between the interest the bank collects and the interest it pays on its own borrowings, was down slightly to 3.56 percent, from 3.89 percent a year earlier.

Profits in the community banking division, which spans Wells Fargo’s retail branches and mortgage business, increased 14 percent to $2.9 billion.

The bank successfully courted more cash from depositors, adding $72 billion in total core checking and savings deposits than a year earlier.

“The company’s underlying results were driven by solid loan growth, improved credit quality, and continued success in improving efficiency,” Wells Fargo’s chief financial officer, Tim Sloan, said in a statement.

The bank has benefited from sweeping federal stimulus initiatives that have buoyed the mortgage business. The Treasury Department has helped prompt Americans to refinance their mortgages.

Wells Fargo is the reigning titan in the mortgage industry, generating roughly a third of all the mortgages across America. Mortgage originations continued to climb, up 4 percent to $125 billion.

Adding to its mortgage-related profits, Wells Fargo reported a $926 million profit from its servicing business, in which the bank collects payments from homeowners. That’s up roughly 6 percent from a year earlier.

Alongside the consumer loan business, Wells Fargo had gains in its wealth management business, a particular focus for the bank to defray the impact of federal regulations that dragged down profits elsewhere.

Still, Wells Fargo could see its profits from residential mortgages wane later this year if the Federal Reserve halts its extensive bond buying spree.

Working to move beyond the mortgage crisis woes that have dogged the bank, Wells Fargo has been brokering deals with federal regulators. Wells Fargo was one of 10 banks that this week signed onto an $8.5 billion settlement with the Comptroller of the Currency and the Federal Reserve over claims that shoddy foreclosure practices may have led to the wrongful eviction of homeowners.

The sweeping federal pact ends a deeply flawed review of millions of loans in foreclosure that was mandated by federal regulators in 2011. The review, which was ended this week, began in November 2011 amid mounting public fury that bank employees were churning through hundreds of foreclosure filings without reviewing them for accuracy.

In addition to the settlement, the bank set aside $1.2 billion to prevent foreclosures.

Article source: http://dealbook.nytimes.com/2013/01/11/wells-fargo-profit-jumps-24-percent-in-fourth-quarter-driven-by-mortgages/?partner=rss&emc=rss

LOOKING AHEAD: Economic Reports for the Week of Dec. 3

ECONOMIC REPORTS Data will include ISM manufacturing index for November and construction spending for October (Monday), ADP employment for November; revised third-quarter productivity, ISM service index for November and factory orders for October (Wednesday), weekly jobless claims (Thursday) and unemployment for November, Thomson Reuters/University of Michigan consumer sentiment index for December and consumer credit for October (Friday).

CORPORATE EARNINGS Companies scheduled to report include Toll Brothers and Pandora Media (Tuesday) and Smithfield Foods (Thursday).

IN THE UNITED STATES On Monday, automakers will report their North American sales for November; and the Financial Stability Oversight Council will meet in a closed session in Washington.

On Tuesday, John Stumpf, the chief executive of Wells Fargo; Brian Moynihan, the chief executive of Bank of America; and Kenneth Chenault, the chief executive of American Express, will speak at the Goldman Sachs Financial Services Conference at the Conrad Hotel in New York; and the Federal Deposit Insurance Corporation will release its quarterly banking profile on industry earnings.

On Wednesday, a House Financial Services subcommittee will conduct a hearing about the economic and market implications of provisions in the Dodd-Frank overhaul law on derivatives; and the Department of Energy will release its annual forecast for energy supply, demand and prices to 2040.

On Thursday, the Census Bureau will release the third of three broad surveys about 2007-11 data on income, education, occupation and other features; a federal judge will hear Apple’s arguments for permanently barring United States sales of eight Samsung smartphone models; the Joint Economic Committee will conduct a hearing about the effect of the so-called fiscal cliff on the economy and the middle class; the House Transportation Committee will conduct a hearing on the high-speed and intercity passenger rail program; the Senate Banking Committee will conduct a hearing about oversight of the Federal Housing Administration; a Senate Commerce subcommittee will conduct a hearing about the effect of Hurricane Sandy on the nation’s transportation systems; and Edward DeMarco, acting director of the Federal Housing Finance Agency, will speak at the Securities Industry and Financial Markets Association’s securitization outlook conference in New York.

On Friday, American Airlines’ pilots will conclude voting on their contract.

OVERSEAS On Monday, euro zone finance ministers will meet in Brussels to discuss the fiscal troubles of Greece, Spain and Cyprus; and the United Nations World Conference on International Telecommunications will start in Dubai and run through Dec. 14. Representatives from 193 United Nations member states will develop new international rules and guidelines.

On Tuesday, European Union finance ministers will meet in Brussels to discuss banking oversight.

On Wednesday, the United States Embassy in Beijing will bring together Chinese investors to discuss investment opportunities with officials from American states; and George Osborne, the chancellor of the Exchequer in Britain, will present updates of economic and fiscal forecasts.

On Thursday, the European Central Bank and the Bank of England will issue decisions about interest rates.

Article source: http://www.nytimes.com/2012/12/03/business/economy/economic-reports-for-the-week-of-dec-3.html?partner=rss&emc=rss