Wells Fargo & Co, the largest U.S. mortgage lender, reported a 3 per cent rise in second-quarter profit, helped by a rally in the equity and fixed income markets, and said it was seeing signs that the U.S. economy was improving.
The bank said its capital markets, corporate banking, commercial real estate, debit card and personal loans businesses had all perked up in the latest quarter compared with the first.
But mortgage lending and investment banking revenue fell, and overall loan growth was modest.
Wells Fargo is the first of the major U.S. banks to report second quarter results, and its earnings show the headwinds that its rivals also faced during the period.
This is also the first quarter since 2009 that Wells Fargo did not increase its earnings-per-share from the preceding quarter, ending a 17-quarter streak.
CEO John Stumpf was upbeat, however, noting that the bank’s businesses were improving compared with the first quarter.
“Our results ... reflected strong credit quality driven by an improved economy, especially the housing market, and our continued risk discipline,” he said in a statement.
Wells Fargo shares were down 1.2 per cent at $51.20 in early trading. Up to Thursday’s close, the stock had risen about 14 per cent since the start of the year.
Net gains from equity investments jumped 121 per cent to $449-million, while earnings from the bank’s wealth, brokerage and retirement business grew 25 per cent to $544-million.
Net gains from debt securities were $71-million compared with a loss of $54-million a year earlier.
Net income applicable to common shareholders rose to $5.42-billion, or $1.01 per share, matching the average analyst estimate. In the second quarter of 2013, the bank earned $5.27-billion, or 98 cents per share.(http://bit.ly/TWX0oK)
Net income was boosted by the release of $500-million that had been set aside to cover bad loans, the same amount it released in both the year-earlier and first quarters.
Revenue slipped to $21.1-billion, from $21.4-billion in the second quarter of 2013, slightly beating expectations, according to Thomson Reuters I/B/E/S.
The bank’s mortgage business – which makes nearly one out of every six U.S. home loans – was constrained by a weak spring selling season compared with a year earlier.
Wells Fargo lent $47-billion in home loans, down from $112-billion a year earlier but up from $36-billion in the first quarter. Income from mortgage banking fell 39 per cent to $1.7-billion compared with the second quarter of 2013.
The bank had $30-billion of mortgage applications in the pipeline at quarter-end, up from $27-billion at the end of the first quarter.
Wells Fargo’s net interest margin, a measure of the profitability of its loans, fell to 3.15 from 3.47 a year prior and 3.20 in the first quarter.
Total lending rose by $2.5-billion from the first quarter to $829-billion.
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