First-quarter profit for Wells Fargo & Co., the biggest U.S. mortgage lender, surged 14 per cent in the latest quarter as the bank continued to trim its losses on soured loans.
EARNINGS: Net income after dividends on preferred stock rose to $5.6 billion in the January-March period from $4.9 billion a year earlier, the bank reported early Friday. On a per-share basis, earnings were $1.05, well above the 97 cents forecast by Wall Street analysts. Revenue in the first quarter fell to $20.6 billion from $21.3 billion a year earlier, in line with analysts’ estimates.
HOW IT HAPPENED: The rise in rates on U.S. mortgages in the latter part of last year continued to have a negative impact on Wells Fargo’s mortgage business.
The San Francisco-based bank, which is the fourth-largest U.S. bank by assets, controls about a third of the U.S. mortgage market. Much of its lending business has been coming from mortgage refinancing, which was dampened by the spike in interest rates.
Wells Fargo funded $36 billion worth of mortgages in the first quarter, down sharply from $109 billion a year earlier.
At the same time, Wells Fargo slashed its losses on loans in the first quarter by 41 per cent, to $825 million from $1.4 billion.
The bank trimmed expenses by $137 million compared with the fourth quarter to $11.9 billion, with lower costs for outside professional services and equipment offsetting higher employee pay and benefits.
EARNINGS ENVY: Wells Fargo’s strong first-quarter results contrasted sharply with those of JPMorgan Chase, the biggest U.S. bank. JPMorgan’s earnings dropped 20 per cent, driven by a decline in bond trading and mortgage lending. Wells Fargo and JPMorgan were the first two big banks to report earnings for the latest quarter.
CAPITAL PLANS: The Federal Reserve last month approved Wells Fargo’s plan to raise its dividend by a nickel to 35 cents per share starting in the second quarter and to boost its planned buybacks of shares. The central bank’s OK was based on results of its so-called “stress tests,” an annual check-up of the nation’s biggest banks to determine if they have large enough capital buffers to keep lending through another financial crisis.
STOCK ACTION: Wells Fargo stock rose $1, or 2 per cent, to $48.72.