Wells Fargo Still Wary of Home Loans
Wells Fargo, whose financial performance is a rough yardstick for the wider economy, on Tuesday reported a rise in third-quarter earnings that were exactly in line with Wall Street's expectations.
The bank had net income of $5.73 billion in the third quarter, a 2.7 percent increase from the $5.58 billion that it made in the quarter a year earlier. The latest earnings are equivalent to $1.02 a share, the consensus of analysts surveyed by Thomson Reuters.
Wells Fargo's revenue was $21.2 billion in the third quarter, slightly better than the $21.1 billion that Wall Street had been expecting.
In recent years, investors have become accustomed to Wells Fargo exceeding analysts' estimates for earnings, so the failure to do so robustly this quarter may raise questions about the bank's performance in the quarter. Also, any signs that Wells Fargo is slowing down may indicate that the economy is still struggling to pick up pace.
Still, John Stumpf, Wells Fargo's chief executive, sounded upbeat.
'We continue to see signs of a steadily improving economy, and I remain optimistic about the opportunities ahead for Wells Fargo,' he said in a statement on Tuesday. Mr. Stumpf added that the bank's third quarter 'demonstrated strength in the fundamental drivers of our long-term growth.'
Wells Fargo is the nation's fourth largest bank by assets, behind three other banks, JPMorgan Chase, Citigroup and Bank of America, which all have a sizable presence on Wall Street. Wells Fargo's concentration on more traditional banking products, like mortgages and auto loans, has not stopped it achieving a higher profitability than other large banks.
Wells Fargo's return on equity, or its profits expressed as a percentage of its shareholder capital, was 13.1 percent in the third quarter, substantially stronger than the 10 percent return that JPMorgan reported on Tuesday for the period. Even so, Well Fargo's third-quarter return on equity fell short of the 14.1 percent that the bank posted a year earlier.
Mortgage banking dominates Wells Fargo but revenue from this source has waned as the refinancing boom has cooled. In the third quarter, mortgage banking income totaled $1.63 billion, a small rise from $1.61 billion the same period last year. Wells Fargo originated $48 billion of mortgages in the third quarter, a steep 40 percent decline from $80 billion a year earlier. Still, the latest number was up slightly from $47 billion in the second quarter of this year.
Wells Fargo has been increasing loans to companies in recent months - and that trend continued in the third quarter. So-called commercial and industrial loans totaled $212 billion, a 12 percent rise from $189 billion in the same period a year ago.
Auto loans rose 11 percent, to $55.2 billion, in the third quarter from a year ago.
Investors have backed the bank, in part, because of its reasonably tight hold on expenses. In the third quarter, noninterest costs were equivalent to 57.7 percent of revenue, lower than the 59.1 percent a year earlier.
Shares of Wells Fargo are up over 10 percent this year, while the broader stock market is roughly flat.
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