Wells Fargo Posts Record Profit, Citing Mortgage Lending
January 18, 2012, 10:25 AM ESTBy Dakin Campbell
(Updates with full-year results, staff cuts, change in reserves, starting in the fourth paragraph.)
Jan. 17 (Bloomberg) -- Wells Fargo & Co., the largest U.S. bank by market value, posted record profit for the fourth quarter and full year that beat analysts’ estimates as mortgage financing improved.
Net income rose 20 percent in the quarter to $4.11 billion, or 73 cents a share, from $3.41 billion, or 61 cents, a year earlier, the San Francisco-based company said in a statement today. That exceeded the 72-cent estimate of 31 analysts surveyed by Bloomberg. Revenue declined 4 percent to $20.6 billion, better than the $20 billion forecast by analysts. For the year, net income climbed 28 percent to $15.9 billion.
“I’m extremely pleased with Wells Fargo’s performance in 2011,” Wells Fargo Chief Executive Officer John Stumpf said in the statement, citing growth in deposits and loans. The bank plans on “returning even more capital to our shareholders.”
Slowing economic growth, low rates and volatile capital markets have sapped revenue at the largest U.S. banks, leading them to seek other sources and cut expenses. Stumpf, 58, reduced his staff by 3 percent to 264,200 and reaffirmed plans to trim $1.5 billion in quarterly costs by the end of this year.
New Mortgages
New mortgages rose 35 percent to $120 billion from the three months ended September at Wells Fargo, the biggest U.S. home lender, while dropping 6 percent from a year earlier. Net interest margin, the difference between what the bank pays for funds and what it earns on loans and securities, climbed to 3.89 percent from 3.84 percent in the third quarter. It fell short of the 4.16 percent reached a year earlier.
Compared with the third quarter, “the net interest margin went up, revenues were up,” Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, told Betty Liu on Bloomberg Television’s “In the Loop” today. “These were two things that people really look at out there, and they showed really good numbers.”
Wells Fargo advanced 2.8 percent to $30.44 as of 9:45 a.m. in New York trading. The company became the most valuable U.S. bank even after last year’s 11 percent stock decline, because most rivals fell further. The lender’s market value of $156.1 billion as of last week compares with $136.5 billion at JPMorgan Chase & Co. and was more than the value of Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. combined.
Loss Provisions
Berkshire Hathaway Inc., the investment and holding company run by Chairman and CEO Warren Buffett, is the biggest Wells Fargo shareholder, with a stake of about 6.9 percent.
Wells Fargo set aside $2.04 billion for credit losses and reported $2.64 billion in net loan writedowns, leading to a reserve release of $600 million. Pretax, pre-provision profit in the quarter fell 1 percent to $8.1 billion from a year earlier.
Banks including Wells Fargo have fallen short in efforts to replace revenue lost to new financial rules such as those capping debit-card interchange fees. Wells Fargo reported a $365 million decline in debit-card interchange fees, partially offset by more fee income from credit cards.
The bank canceled plans last year to charge $3 monthly for using its debit cards after customers in a five-state pilot program protested, and Bank of America Corp. abandoned a proposed $5 fee.
Bond Investors
Wells Fargo is facing claims from mortgage-bond investors. A bondholder group that won an $8.5 billion settlement from Bank of America said this month it may also seek payments from Wells Fargo on more than $19 billion of residential mortgage-backed securities issued by affiliates of the bank.
Non-interest expenses rose to $12.5 billion in the fourth quarter from $11.7 billion in the three months ended September on higher compensation and foreclosure costs, according to the statement.
Wells Fargo may seek to return more capital to shareholders this year. The bank may boost its quarterly dividend from 12 cents to 20 cents this year, according to Edward Najarian, an analyst at International Strategy & Investment Group Inc. He has a “buy” rating on Wells Fargo.
JPMorgan, the largest bank by assets, said last week that fourth-quarter net income slid 23 percent to $3.73 billion. Bank of America, based in Charlotte, North Carolina, will probably post $1.63 billion in profit on Jan. 19, according to 13 analysts surveyed by Bloomberg. New York-based Citigroup Inc. said today fourth-quarter profit dropped 11 percent.
--Editors: Rick Green, Dan Kraut
To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net
