March 29, 2024

DealBook: Wells Fargo’s Earnings Jump 22%

A branch of Wells Fargo in New York.Shannon Stapleton/ReutersA branch of Wells Fargo in New York.

5:42 p.m. | Updated

At the height of the financial crisis, the mortgage business was a millstone for the banking industry. Today, it is a profit center.

Wells Fargo on Friday reported $4.9 billion in profit for the third quarter, a 22 percent jump largely led by a booming mortgage business.

The bank, based in San Francisco, continues to churn out record profit, having reported 11 straight quarters of gains in net income. The results of 88 cents a share narrowly beat the estimates of analysts polled by Thomson Reuters, who forecast earnings of 87 cents a share.

The bank’s revenue increased as well, sidestepping a common sore spot that has plagued most all of the nation’s biggest banks. Wells Fargo recorded $21.2 billion in revenue, which surpassed the $19.6 billion figure from a year earlier but was slightly below expectations.

The bank’s lending division led the growth, as consumers refinanced their mortgages to take advantage of record low interest rates. Wells Fargo, the nation’s largest mortgage lender, snared $188 billion in home mortgage applications, an 11 percent jump from the third quarter of 2011.

The bank’s chief financial officer, Timothy J. Sloan, underscored that “it’s more than just the mortgage business.” The strong results, he noted, were spread across the bank. The wealth management unit improved. So did the sales and trading business.

“We just have the great benefit of this diversified model,” Mr. Sloan said in an interview.

But investors were not fully impressed. On Friday, the bank’s shares closed down 2.6 percent to $34.25, reflecting concern about net interest margin, an important measure of the income the bank makes on its assets. The measure declined in part because the bank’s own investments suffered from an environment of low-interest rates.

Wells Fargo, along with JPMorgan Chase, began the bank earnings season on Friday. The nation’s other big banks, including Goldman Sachs and Bank of America, will report their results next week.

The Wells Fargo story line — that a deep lending effort breeds success — is rooted in broad federal stimulus efforts that have propped up the mortgage industry. An initiative by the Treasury Department is spurring refinancings. And the Federal Reserve has introduced a long-term plan to buy large batches of mortgage-backed bonds, which should help keep rates low.

Wells Fargo, more than five years after the mortgage crisis, has seized the opportunity. The bank now creates roughly a third of all mortgages in the country. Total outstanding loans jumped slightly in the third quarter to $783 billion while the bank’s home mortgage originations soared 56 percent to $139 billion.

The demand for credit came largely from refinancing, which accounted for 72 percent of all home loan applications. The Treasury program produced 14 percent of the mortgage volume.

Like other big banks, Wells Fargo makes home loans before selling most of them to investors after attaching a government guarantee. Those gains totaled $2.61 billion in the third quarter, up 225 percent from $803 million in the third quarter of last year.

The refinancing boom is fueling profits. Wells Fargo’s profit in the community banking division, which includes Wells Fargo’s retail branches and mortgage business, climbed 18 percent to $2.7 billion.

Despite the gains, the mortgage crisis continues to haunt Wells Fargo. The bank this summer agreed to pay $175 million to settle Justice Department accusations that it discriminated against certain minority homeowners from 2004 to 2009. Wells Fargo, which denied the charges, was also sued this week by federal prosecutors in New York, who claim the bank defrauded the government and lied about the quality of the mortgages it handled under a federal housing program.

Still, the legal troubles will barely nick the bank’s bottom line.

Like JPMorgan, Wells is having growth beyond mortgages. Wholesale banking, which includes the sales and trading business along with the corporate lending division, increased its profit by 11 percent, to $1.9 billion. While the unit operates in the shadow of the Wall Street investment banks, Wells Fargo has gradually extended its reach in that area.

“There are a lot of underlying positives that will continue to drive the earnings of this company,” said Edward R. Najarian, a senior bank analyst at ISI, a New York research firm.

Peter Eavis contributed reporting.

Article source: http://dealbook.nytimes.com/2012/10/12/wells-fargo-posts-earnings-of-4-9-billion-up-22/?partner=rss&emc=rss

DealBook: Wells Fargo Profit Jumps, but Revenue Falls Slightly

Noah Berger/Bloomberg News

8:20 p.m. | Updated

Wells Fargo Company posted a 48 percent increase in first-quarter profit on Wednesday, but investors were not impressed by the results, given fears that sluggish mortgage loan growth would erode the bank’s earnings power.

Shares of the bank, which is based in San Francisco, fell 4.1 percent as traders looked past bottom-line earnings of $3.8 billion and focused on slow top-line growth.

Revenue fell 5.2 percent to $20.3 billion as rising interest rates caused the mortgage refinancing boom to slow down.

The bank, which is the nation’s biggest mortgage underwriter, said that home loan origination volume fell by more than 34 percent from the fourth quarter.

Nonetheless, Wells Fargo beat analysts’ estimates by a penny and recorded a record profit with the help of some sophisticated financial management.

The bank reduced the amount it set aside to cover future loan losses by about $3 billion from a year ago even as its pile of bad loans decreased.

The reserve reduction strategy has been a favorite of the major banks this quarter, as they have all taken advantage of the improved economy to lower loan-loss provisions. That leaves more money to be counted as profit, although it can camouflage underlying weakness.

Other giant banks with big Wall Street businesses were able to make up for some of the missing income with stronger results from investment banking and trading. But Wells Fargo, which is more oriented to retail banking, could not.

However, Timothy J. Sloan, Wells Fargo’s newly installed chief financial officer, brushed aside concerns that Wells Fargo would be severely hurt by a fall-off in its mortgage business.

“If rates go up, it is probably because the economy is going to grow,” he said in an interview. “And if the economy is growing, it’s more likely the rest of our businesses will grow.” With an improved economy, he said, he foresees a pickup in its wealth management and small business lending operations, as well as finding new profits by deploying more than $100 billion of cash it has on hand.

Investors were not convinced. Wells Fargo’s stock fell $1.24, to $28.83 a share, while shares of its rivals, Bank of America, Citigroup, and JPMorgan Chase, were flat.

Along with the slowdown in mortgage lending, Wells Fargo faces rising operating costs for servicing loans that are headed into foreclosure, especially after reaching a deal with federal regulators this month to increase staff levels and improve oversight.

Wells Fargo said it took a quarterly charge of about $214 million on its mortgage servicing business after factoring in the higher operating expenses.

The bank has strengthened internal processes and hired 1,000 staff members after adding several thousand last year.

Wells also said it was setting aside an additional $472 million to cover other foreclosure expenses, like fines and litigation costs. That is up from about $193 million in the fourth quarter.

Like the other big banks, Wells Fargo may be required to buy back bad loans it sold to Fannie Mae, Freddie Mac and other private investors.

In the first quarter, the bank set aside $249 million to cover future repurchases, after setting aside $464 million in the fourth quarter.

Still, the spill of red ink has slowed. Although the housing market and broader economy remain fragile, Wells Fargo said it had released $1 billion from its loan loss reserves in the first three months of the year and expected to continue drawing down its reserves in the coming quarters.

“We wanted to see more sustained performance in the improvement of the portfolio,” Mr. Sloan said. “We have seen that trend continue.”

Article source: http://feeds.nytimes.com/click.phdo?i=55a81aaab66c4659ac6965e5eb79b4e2

Bucks: Monday Reading: Aging Without Children

March 28

Monday Reading: Aging Without Children

Aging without children, companies aren’t hiring despite record profit growth, buying customized clothing online, and other consumer news from Monday’s Times.

Article source: http://feeds.nytimes.com/click.phdo?i=516b4019fd889889c34c902f0861345f