Wells Fargo Earns $1 Per Share

Fourth-quarter earnings are out for Wells Fargo ($WFC). The big bank earned $1 per share which beat estimates by two cents per share. For Q4 of 2012, Wells earned 91 cents per share. For the quarter, net income was up 10% and for the year, it was up 16% to $21.9 billion.

Chief Executive Officer John Stumpf, 60, is trimming staff and expenses as rising interest rates curtail demand for home refinancings. Wells Fargo had vowed to reduce overhead after expenses surged above its target in the previous three months.

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Revenue slid 6 percent in the quarter to $20.7 billion from a year earlier and 3 percent for the full year to $83.8 billion, while profit before taxes and provisions fell 5 percent. Non-interest expense dropped 6 percent and the efficiency ratio, which measures costs as a percentage of revenue, improved to 58.5 percent from 59.1 percent in the third quarter and 58.8 percent a year earlier.

Segment Results

Profit rose in all three operating segments, with the greatest percentage gains coming in wealth, brokerage and retirement, the unit run by David Carroll. Mortgage originations fell to $50 billion, a 38 percent decline from the third quarter, and mortgage-banking income fell by almost half from year-earlier levels to $1.57 billion.

Net interest margin, the difference between what the bank makes on lending and pays for funds, fell to 3.26 percent from 3.38 percent in the third quarter.

The annual profit represents the fifth straight record year for the lender, which doubled its size with the 2008 purchase of Wachovia Corp. It was the first year since 2009 that profit surpassed New York-based JPMorgan Chase & Co., the biggest U.S. lender by assets, which earned $17.9 billion for all of 2013 — a 16 percent drop.

Wells Fargo, which ranks fourth by assets, gained 33 percent in New York trading last year, trailing the 35 percent return for the 24-company KBW Bank Index. The stock closed at $45.56 yesterday and declined to $45.43 at 8:19 a.m. in New York.

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Wells Fargo, responsible for about 1 in 5 U.S. mortgages last year, has profited from Federal Reserve policies that lowered mortgage rates and sparked a refinancing wave. As rates have risen, applications have slowed and cut into originations. Rates on 30-year mortgages averaged 4.51 percent last week, up from 3.35 percent in early May, according to Freddie Mac.

Stumpf announced 5,300 job cuts in the third quarter, and another 925 in October. The impact began to take effect in the fourth quarter, according to a Nov. 7 presentation and may reduce costs by as much as $750 million annually, Deutsche Bank AG analysts wrote in a Jan. 3 report.

The bank is also facing fewer costs tied to litigation and legal expenses than its peers. Through the first nine months of 2013, those expenses fell 1.2 percent to $413 million, according to regulatory filings.

Legal settlements and other costs related to mortgage lending and sales should continue to decline, Stumpf said during a Dec. 10 investor conference. The bank began an internal ethics review this month that could last as long as two years, with plans to examine standards for how employees should act and procedures for handling conflicts of interest across more than 80 business lines.

Posted by on January 14th, 2014 at 9:45 am


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