Wells Fargo beats expectations with 3.2% profit increase
The Wells Fargo stagecoach continues to roll despite the weak economy, weathering the San Francisco bank’s 2008 acquisition of Wachovia Corp. better than some critics had predicted.
Wells Fargo & Co. reported Wednesday that it earned $3.34 billion, or 60 cents a share, in the third quarter, up 3.2% from $3.24 billion, or 56 cents, a year earlier. Excluding some one-time items, the results easily topped analyst estimates.
Wells shares jumped $1.05, or 4.3%, to $25.60 on the results.
The largest originator of home loans, Wells got a boost in the latest quarter from rock-bottom interest rates, which caused a surge in mortgage applications. The bank wrote $101 billion in new mortgages during the period, up from $81 billion in the second quarter.
Wells Fargo is also a big player in mortgage servicing, trailing only Bank of America Corp. in that field. That operation includes dealing with delinquent borrowers who obtained risky adjustable-rate loans from Wachovia before the housing bust. Wells acquired the Charlotte, N.C., bank and its huge portfolio of troubled mortgages at the height of the credit crisis.
Bank of America and JPMorgan Chase & Co. have put evictions on hold in recent weeks to check on suspect foreclosure paperwork. Lawsuits also have challenged foreclosures, citing alleged flaws in the procedures used to transfer titles as loans were sold and bundled to back mortgage securities.
But Wells Fargo has no plans for a similar freeze, Chairman and Chief Executive John Stumpf said, reiterating a statement that the company made last week.
“We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate,” Stumpf said in Wednesday’s earnings news release. “For these reasons, we did not, and have no plans to, initiate a moratorium on foreclosures.”
Delinquent loans and other nonperforming assets held by Wells Fargo continued to rise, reaching 4.6% of all assets, up from 2.9% a year earlier. The trend has caught the eye of critics such as research firm Gradient Analytics, which contends that the bank’s allowance for loan losses should be higher. Gradient has given Wells Fargo stock a “D” grade as an investment.
But the loss allowance on the company’s Sept. 30 balance sheet was down from June 30, and may keep falling.
“Absent significant deterioration in the economy, we currently expect future reductions in the allowance for loan losses,” Chief Risk Officer Mike Loughlin said.
The company’s loans outstanding totaled $754 billion at the end of the third quarter, down from $800 billion a year earlier.
Wells Fargo said it wrote off $4.1 billion in loans as uncollectible during the third quarter, down 24% from a peak of $5.4 billion in the fourth quarter of last year.
Of the loans recorded as uncollectible in the latest period, about $1 billion were on first mortgages and $1.1 billion were on second mortgages such as home-equity loans. But Wells Fargo said losses attributed to mortgages made by Wachovia were lower than originally expected.
