Mortgage applications boost Wells Fargo results
Wells Fargo’s net income and revenue rose in the second quarter, driven by a pickup in lending and a decline in the amount of bad loans.
The San Francisco-based bank reported an 18 percent increase in net income Friday, to $4.4 billion, compared with $3.7 billion in the same period a year ago.
On a per-share basis, the bank earned 82 cents, in line with estimates of analysts polled by FactSet. Revenue of $21.3 billion was also in line with analysts’ expectations.
The past two months have been vicious for the broader banking industry, which has been hit by accusations of interest-rate fixing, downgrades by the Moody’s ratings agency, and a surprise trading loss at JPMorgan Chase. Wells Fargo has largely managed to avoid those problems. Its own earnings announcement was overshadowed by JPMorgan, which started a two-hour conference call at 7:30 a.m. to explain its $4.4 billion trading loss to analysts and investors.
Industry analysts raised their estimates for Wells Fargo’s earnings in recent weeks, even as they steadily cut them for most other big banks. The bank, a relative unknown on the East Coast until it scooped up Wachovia at the height of the financial crisis in 2008, is now the country’s biggest bank my stock market value.
Mortgages are a large part of the bank’s livelihood, and it has muscled its way to the top of the chain as its rivals pulled back. The trade publication Inside Mortgage Finance estimates that Wells Fargo controls 34 percent of mortgage lending in the U.S. The runner-up, JPMorgan Chase, controls 11 percent.
That strategy has driven revenue higher, but it also brought headaches. Thursday, for example, the bank agreed to settle Department of Justice charges that it had discriminated against African-American and Hispanic borrowers by steering them into expensive mortgages. The bank denied the charges but said it wanted to get the matter behind it. Like other banks, Wells Fargo has also been buying back mortgage-backed bonds from investors who say they were misled about the bonds’ quality when they bought them. The bank said it added $669 million for mortgage repurchases in the latest quarter, compared with $242 million a year ago.
Total loans grew, including commercial and industrial loans increased. The bank had a record amount of mortgage applications.
Fees that the bank charged on credit and debit cards fell 30 percent, partly because of new federal laws that restrict how much banks can charge. However, service charges on deposit accounts rose 6 percent.
The bank is also cutting expenses. It eliminated about 2,200 jobs, or 1 percent of its work force. Commissions and bonuses rose 8 percent and total salaries rose 3 percent, though employee benefits declined 10 percent. The bank also cut spending on equipment, postage and advertising, though travel and entertainment increased.
The stock fell 5 cents in pre-market trading Friday, to $32.85.
Copyright 2012 The Associated Press.