Wells Fargo's profit up 13 percent
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An ATM at a Wells Fargo bank, in Atlanta. Third-quarter profit for Wells Fargo & Co., the biggest U.S. mortgage lender, jumped 13 percent.
Third-quarter profit for Wells Fargo & Co., the biggest U.S. mortgage lender, jumped 13 percent as a decline in revenue from mortgage lending was offset by reduced expenses and fewer soured loans.
THE RESULTS: Net income increased to $5.6 billion in the July-September period from $4.9 billion a year earlier. On a per-share basis, earnings were 99 cents, beating the 97 cents forecast by Wall Street.
Third-quarter revenue dipped to $20.5 billion from $21.2 billion, coming in below the analysts' forecast of $21.1 billion. The bank's stock fell 20 cents, or 0.5 percent, to $41.23 in late trading.
HOW IT HAPPENED: Interest rates on U.S. mortgages rose sharply in the spring and summer. That had a negative impact on Wells Fargo's mortgage business.
The San Francisco-based bank controls nearly a third of the U.S. mortgage market. Much of its lending business has been coming from mortgage refinancing, which was reduced by the spike in interest rates.
Wells Fargo funded $80 billion worth of mortgages in the third quarter, down from $139 billion a year earlier.
Fewer bad loans in an improving housing market cut Wells Fargo's lending losses to $975 million from $2.4 billion in the third quarter of 2012.
The bank reduced expenses to $12.1 billion, down $153 million from the second quarter. The savings were mainly due to reduced employee bonuses and legal costs.
WHAT'S NEXT? The bank had said back in July that higher interest rates would impact its mortgage business. Now, Wells Fargo says it will be in a strong position with its variety of businesses to weather the economy's move to higher interest rates. Strong revenue growth is coming from credit cards, personal credit management and retirement services, the bank says.
Wells Fargo is the fourth-largest U.S. bank by assets. It became more diversified when it took over the teetering Wachovia in the depths of the financial crisis in 2008, Wells Fargo Chief Financial Officer Tim Sloan noted Friday.
SHUTDOWN AND DEFAULT THREAT: One concern is the impact the ongoing government shutdown could have on consumer confidence, Sloan said in a telephone interview.
Sloan sees the most serious threat as a potential U.S. default, if a deal isn't worked out by the White House and Republicans in Congress before the government exhausts its borrowing authority on Oct. 17.
As a nation, "We've got to live up to our obligations," said Sloan.
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