Wells Fargo profit beats estimates; mortgage loans slump

Tue Jan 14, 2014 4:17pm EST
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By Peter Rudegeair and Anil D'Silva

(Reuters) - Wells Fargo & Co (WFC.N: Quote) posted a better-than-expected 11 percent jump in quarterly profit as it cut costs, but mortgage lending slowed to the lowest level in five years.

The fourth-largest U.S. bank by assets said core lending grew by 6 percent, boosted by a sharp jump in trade finance, commercial real estate and other loans to foreign companies and a 10 percent rise in auto loans - a feat that Chief Financial Officer Tim Sloan called "absolutely terrific." The bank also dipped into money it had set aside to cover bad loans, as credit quality improved with a recovering economy.

"We sit here this January as an economy, and frankly as a company, in better shape than I have sat here in the last five or six Januaries," Chief Executive John Stumpf said on a conference call after Wells Fargo reported its results. He said he is optimistic that loans and revenues could increase over time.

Stumpf's somewhat upbeat outlook shows how the industry is still waiting for the economic recovery to translate into more broad-based loan growth and profits.

The mortgage business, which had been one bright spot for banks such as Wells, suffered a steep decline industry-wide as fewer consumers refinanced home loans because of higher mortgage rates. At Wells Fargo, the mortgage decline overshadowed improvements in many of its 89 other businesses. The bank's revenue fell 6 percent to $20.7 billion.

Wells made nearly one in five U.S. home loans in the first nine months of 2013, according to industry publication Inside Mortgage Finance. In 2013, the business accounted for 10 percent of the bank's overall revenues.

"They have various other business lines to offset" the decline in mortgages, said Christopher Mutascio, a banking analyst at Keefe, Bruyette & Woods. "But that's just it - they can only offset it; they can't grow revenue."

Wells Fargo made $50 billion of residential mortgage loans in the quarter, less than half the $125 billion in the same period a year earlier and down from $80 billion in the third quarter. Income from mortgage lending fell to $1.6 billion from $3.1 billion in the fourth quarter of 2012.   Continued...

The logo for Wells Fargo bank is pictured in downtown Los Angeles, California July 17, 2012. REUTERS/Fred Prouser