Fargo mortgage revenue drops, shares fall
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[July 12, 2014]
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
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,"
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.
The second-quarter results reflect how hard a job Stumpf has in
trying to boost revenue from other businesses.
Even as unemployment falls in the United States and the economy
shows signs of recovery, loan growth has been tepid: the bank's
loans, excluding pre-crisis assets it is winding down, rose just 2
percent in the second quarter from the first quarter.
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Wells Fargo is the first of the major banks to post earnings, and
rivals likely faced similar headwinds
Overall, Wells Fargo earned $5.42 billion, or $1.01 per share, in
line with estimates from Thomson Reuters I/B/E/S. In the second
quarter of 2013, the bank earned $5.27 billion, or 98 cents per
The rising U.S. stock market helped Wells Fargo in several ways. Its
net gains from equity investments rose 121 percent to $449 million,
while earnings from its wealth, brokerage and retirement business
grew 25 percent to $544 million thanks in part to fees tied to
higher market valuations.
Net gains from debt securities were $71 million compared with a loss
of $54 million a year earlier.
Revenue slipped to $21.1 billion, from $21.4 billion in the second
quarter of 2013, slightly beating expectations, according to Thomson
Wells Fargo made $47 billion of home loans, down from $112 billion a
year earlier but up from $36 billion in the first quarter. Revenue
from mortgage banking fell to $1.7 billion.
(Reporting by Peter Rudegeair and Tanya Agrawal; Editing by Ted Kerr
and Steve Orlofsky)
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