Wells Fargo mortgage revenue drops, shares fall

Fri Jul 11, 2014 1:49pm EDT
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By Peter Rudegeair and Tanya Agrawal

(Reuters) - Wells Fargo & Co, the fourth-largest U.S. bank, reported a 39 percent drop in mortgage revenue for the second quarter as lending volume dropped, underscoring the urgency for the bank to find other sources of income growth.

The bank managed to boost earnings and meet analyst estimates through gains from investments in stocks and bonds among other areas. But that income could be difficult to repeat in coming quarters, analysts said.

Meanwhile, the pressure on Wells Fargo's mortgage business, one of its largest sources of revenue for years, is continuing and intense. The bank's shares fell 0.4 percent to $51.58.

Overall U.S. mortgage lending volumes have been falling for 15 months as rates have risen, cutting into demand to refinance home loans. This spring was also a weak home buying season compared with last year's, Chief Financial Officer John Shrewsberry told investors on a conference call.

"The purchase market is softer than we thought it would be," Shrewsberry said.

But Wells Fargo's mortgage volume declines were greater than the overall market in percentage terms, according to the Mortgage Bankers Association's estimates. That may be because last year smaller banks were selling their loans to Wells Fargo, which in turn would package them into bonds to sell to investors under government programs, which counted as Wells Fargo's volume.

Many of those banks are now selling directly to investors under government programs, Chairman and Chief Executive John Stumpf said in an interview. The bank is the largest U.S. mortgage lender.

This is the first quarter since 2009 that Wells Fargo did not report an increase in earnings per share from the preceding quarter, ending a 17-quarter streak.   Continued...

The logo on a Wells Fargo bank building is seen in downtown San Diego, California March 18, 2014.
 REUTERS/Mike Blake