July 19 (Bloomberg) -- Wells Fargo & Co., the biggest U.S. home lender, climbed the most since November as profit rose to a record and it announced a goal of cutting $1.5 billion in quarterly costs by the end of next year.
Wells Fargo advanced 5.7 percent as executives revealed details of a plan to shrink noninterest expense to $11 billion a quarter by the end of 2012. Net income climbed 29 percent to $3.95 billion, or 70 cents a diluted share, the San Francisco-based company said today in a statement.
“The market is applauding the detail they gave regarding new cost-saving initiatives,” said Shannon Stemm, an analyst at Edward Jones & Co. in St. Louis, who has a “hold” rating on the company. “Wells Fargo is ahead of its peers in recognizing that cutting expenses may be the only way to combat revenue weakness.”
Chief Executive Officer John Stumpf, 57, is relying on loan-loss reserves and cost-cutting to boost profit as a jobless rate above 9 percent has tempered the U.S. economic recovery. Consumer borrowing rose in May for the eighth straight month, a sign that people may be ramping up credit-card debt as gasoline prices and unemployment climb.
“Revenue remains king around here,” Stumpf said during a conference call. “By becoming more efficient we can grow faster and become more competitive.”
Revenue Matches Estimates
Revenue rose 0.3 percent from the first quarter, while declining 4.7 percent from the same period a year earlier, to $20.4 billion, matching analysts’ estimates. Pretax, pre-provision income advanced 4 percent to $7.91 billion, compared with the preceding three-month period. Total loans climbed $766 million to $751.9 billion as of June 30.
Noninterest expense declined $258 million from the first quarter to $12.5 billion, which included $484 million in merger-related costs and $428 million tied to operating losses, with “substantially all” of that related to litigation around mortgage foreclosures, the bank said in the statement.
Wells Fargo set aside $1.84 billion in the second quarter to cover future loan losses, down from $3.99 billion in the same period a year earlier, as net write-offs declined 37 percent to $2.84 billion, according to the statement.
The lender posted $261 million in losses from having to repurchase home loans, down from $331 million in the first quarter. The bank had $1.19 billion set aside to cover future mortgage losses. Outstanding claims declined to $2.24 billion of original loan balance, down from $2.49 billion at the end of March.
Bank lending has picked up for businesses and corporations as well, Federal Reserve data show. U.S. commercial banks’ holdings of commercial and industrial loans rose to $1.26 trillion in May, a 1 percent increase from the previous month.
Wells Fargo, the fourth-biggest U.S. bank by assets, advanced $1.53 to $28.41 at 4:15 p.m. on the New York Stock Exchange, the top performance in both the 81-company S&P 500 Financials Index and the KBW Bank Index, with 24 firms. The shares have declined 8 percent this year, compared with an 11 percent drop in the KBW index.
Warren Buffett’s Berkshire Hathaway Inc., Wells Fargo’s largest shareholder, held 342.6 million shares, a 6.5 percent stake, as of March 31. Wells Fargo said it purchased 35 million shares in the quarter valued at about $1 billion.
BofA, JPMorgan, Citigroup
The lender is the last of the four largest U.S. banks to report second-quarter results. The biggest, Bank of America Corp., reported an $8.83 billion loss today on costs tied to defective mortgages. No. 2 JPMorgan Chase & Co. said last week that profit rose 13 percent to $5.43 billion as revenue unexpectedly climbed on gains from underwriting stocks and bonds. Citigroup Inc., the third-biggest, said profit surged 24 percent to $3.34 billion on higher investment-banking fees.
The four lenders, along with Ally Financial Inc., are in advanced talks with state attorneys general and federal regulators over deficiencies in their mortgage-servicing operations. The companies face penalties that may exceed $20 billion, two people familiar with the negotiations have said.
Wells Fargo may be forced to hold less capital than competitors after global central banks agreed last month to levy extra capital rules for lenders whose size or systemic importance means their failure could cause another financial crisis.
The new rules will be “less burdensome” for the lender than rivals such as New York-based JPMorgan, Andrew Marquardt, an analyst with Evercore Partners Inc., said in an interview before Wells Fargo announced its results.
To contact the reporter on this story: Dakin Campbell in San Francisco at firstname.lastname@example.org
To contact the editor responsible for this story: David Scheer at email@example.com.