Weak­ness in mort­gage busi­ness clouds Wells Fargo’s profit beat

The Star (St. Lucia) - - BUSINESS -

Wells Fargo & Co posted a bet­ter-thanex­pected quar­terly profit, but rev­enue fell short of ex­pec­ta­tions as the lender’s mort­gage busi­ness con­tin­ued to re­main a dark spot.

While higher in­ter­est rates have helped banks earn more on loans, bor­row­ers have shied away from re­fi­nanc­ing their loans, hurt­ing mort­gage busi­ness across the bank­ing in­dus­try.

Wells Fargo’s shares were down 2.1 per­cent in pre­mar­ket trad­ing. Shares of JPMor­gan Chase and Cit­i­group, which also re­ported bet­ter-than-ex­pected prof­its, were down about more than 2 per­cent.

Wells Fargo, the largest U.S. res­i­den­tial mort­gage lender, recorded an 18.8 per­cent fall in mort­gage bank­ing in­come to $1.15 bil­lion.

JPMor­gan, its clos­est ri­val in mort­gage bank­ing, posted a 41 per­cent de­cline in mort­gage fees and loan ser­vic­ing rev­enue.

Wells Fargo’s to­tal rev­enue re­mained flat at $22.17 bil­lion and missed an­a­lysts’ av­er­age es­ti­mate of $22.47 bil­lion.

Mort­gage bank­ing was not the only drag. Whole­sale bank­ing was par­tic­u­larly weak, with non-in­ter­est in­come fall­ing by 21 per­cent to $2.67 bil­lion.

The bank at­trib­uted the de­cline to the $290 mil­lion sale of a health ben­e­fit ser­vice busi­ness a year ago, as well as lower re­sults from trad­ing and prin­ci­pal in­vest­ing.

How­ever, it was not all gloom for the third-largest U.S. bank by as­sets. Net in­ter­est in­come, a mea­sure that re­flects earn­ings rel­a­tive to fund­ing costs, rose 6.4 per­cent to $12.48 bil­lion.

The U.S. Fed­eral Re­serve raised in­ter­est rates for the sec­ond time this year in June, and in­di­cated an­other pos­si­ble hoist this year.

The bank also set aside less money to meet any fu­ture loan losses. Pro­vi­sions nearly halved to $555 mil­lion, helped by an im­prov­ing en­ergy loan port­fo­lio.

Net in­come rose 4.5 per­cent to $5.40 bil­lion, or $1.07 per share, in the quar­ter ended June 30, beat­ing the av­er­age an­a­lyst es­ti­mate of $1.01, ac­cord­ing to Thom­son Reuters.

Wells Fargo has also been strug­gling with high costs as it bat­tles law­suits re­lated to a sales scan­dal last year, which in­volved em­ploy­ees cre­at­ing mil­lions of unau­tho­rized ac­counts in cus­tomers’ names to meet sales tar­gets.

The San Fran­cisco-based lender said non-in­ter­est ex­penses rose about 5 per­cent to $13.54 bil­lion.

“We con­tin­ued to make progress this quar­ter in our ef­forts to re­build trust ... while there is still more work ahead of us, we are on the right track and I am con­fi­dent about our fu­ture”, Chief Ex­ec­u­tive Tim Sloan said.

The com­pany dou­bled its cost-cut­ting goals in May and plans to re­duce costs by $4 bil­lion through the end of 2019.

Wells Fargo has also been strug­gling with high costs as it bat­tles law­suits re­lated to a sales scan­dal in 2016.

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