Wells Fargo profit jumps but mortgage lending slips
By Rick Rothacker
(Reuters) - Wells Fargo & Co (WFC.N: Quote) on Friday said fourth-quarter profit rose 24 percent to a record high as the bank set aside less money to cover bad loans and made more fees from mortgages.
But lending margins declined and the bank made fewer mortgage loans than in the third quarter, and its shares closed down 0.8 percent at $35.10.
Wells is the first big U.S. bank to report fourth-quarter results, and its report reflects how banks are relying more on fees from mortgages and service charges to increase revenue, and less on interest income. Low interest rates are pressing on the profit banks make from interest.
But fees from mortgages may help the bank less in the future. The bank's pipeline of applications for home loans that have not yet closed was $81 billion at the end of the fourth quarter, down from $97 billion at the end of the third quarter. Wells issued $125 billion in mortgages during the fourth quarter, compared with $139 billion in the third quarter.
In an interview, Wells Chief Financial Officer Tim Sloan said the bank made fewer mortgage loans in the fourth quarter mostly due to a decision to stop making loans through brokers. The volume of loans under way but not yet closed is still among the highest in the bank's history, he said.
"Assuming rates stay about where they are or even pick up just a little bit, it's reasonable to assume we will still have healthy, strong originations in the mortgage business," Sloan said.
Wells, the fourth-biggest U.S. bank and the nation's largest home lender, said fees from mortgages climbed nearly 30 percent from a year ago to $3.1 billion as homeowners continued to refinance their homes at low interest rates.
The Mortgage Bankers Association has forecast that banks will make fewer loans in 2013 than 2012, and then fewer again in 2014, with a drop in refinancings more than offsetting an increase in loans to purchase homes. Continued...