Wells Fargo Gets Boost from Higher Rates but Loan Growth Stagnates -- 3rd Update
July 14 2017 - 1:09PM
Dow Jones News
By Peter Rudegeair
Wells Fargo & Co. reaped the benefits of higher interest
rates in the second quarter, which helped push profit at the
nation's third-largest bank up by 4.5%.
The San Francisco-based bank's shares fell 2% in midday trading,
however, as stagnant loan growth, weaker revenue in areas like
mortgage banking and higher costs overshadowed progress on the
bottom line.
The bank reported a profit of $5.81 billion, or $1.07 a share.
That compares with $5.56 billion, or $1.01 a share, in the same
period of 2016. Analysts polled by Thomson Reuters had expected
earnings of $1.01 a share.
The bank's results included a $186 million tax benefit during
the second quarter, most of which was related to a deal it reached
in June to sell its commercial insurance business. That boosted
Wells Fargo's per-share earnings by 4 cents. Excluding this, the
company's earnings would have come in at $1.03.
Net interest income at the bank rose 6.4% to $12.48 billion from
the same period last year. Big banks' loan businesses have been
helped in recent weeks by higher U.S. interest rates and bond
yields.
The bank's net interest margin, a measure of how profitably it
can lend out its customers' deposits, rose to 2.9% from 2.86% last
June, and its return on equity rose to 11.95% from 11.7%. The bank
said it exercised discipline in repricing deposits, which helped
them capture more of an increase in loan yields.
The overall size of Wells Fargo's loan book stalled at $957
billion. During the quarter, the bank backed off making certain car
loans and commercial real estate loans due to higher risk in those
segments, executives said on a conference call with analysts.
Wells Fargo's income from fees fell 7% to $9.69 billion, with
several of its businesses facing challenges in the quarter.
Mortgage-banking fee income fell 19% due in part to tougher
competition, and net gains on the bank's trading activities fell
46% due in part to trading losses.
The bank, led by Chief Executive Timothy Sloan, had been one of
the most consistent big banks at growing earnings and revenue.
Shares dropped though last year after the bank agreed to a $185
million settlement with two regulators and a city official over
opening as many as 2.1 million accounts with fictitious or
unauthorized information.
It also continues to face a spate of state and federal
investigations that the bank has said it is cooperating with.
While the overall impact of the sales-practices scandal on Wells
Fargo's bottom line hasn't yet been dramatic, investors and
analysts are pressing the bank to show it can grow. But it has
responded that it may take time, and meanwhile in May announced an
additional $2 billion in cost cuts by the end of 2018.
Overall revenue rose slightly to $22.17 billion, but fell short
of the $22.47 billion expected by analysts.
Costs at Wells Fargo increased 5.2% to $13.54 billion from
$12.87 billion in the second quarter of 2016. Expenses as a share
of revenue in the second quarter was 61.1%, slightly above the new
target of 60% to 61% set at an investor presentation in May. That
is also higher than the two-year target the bank set last year of
55% to 59%.
"Operating at this level is just not acceptable," said Mr. Sloan
on a conference call with analysts.
The bank's shares bounced back following the election, rising
22%. That compares with a 28% jump by the KBW Nasdaq Bank index of
large commercial lenders over the same period.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
July 14, 2017 12:54 ET (16:54 GMT)
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