Wells Fargo Chief Says Economy Improves as More Homeowners Make Payments
While energy costs are a challenge, home prices in some regions have found a bottom, Stumpf told investors today during a conference sponsored by Sanford C. Bernstein & Co. Stumpf spoke less than an hour after the latest data on U.S. labor markets showed employers added the fewest number of workers in eight months and unemployment unexpectedly rose to 9.1 percent.
Jobs are the main ingredient in determining whether homeowners keep up with their loans, Stumpf said, adding that overdue payments have been declining.
“American pay their bills if they have jobs,” he said during a discussion about home-equity loans. As for purchases, homes in some cases are cheaper to buy than to rent, he said.
Wells Fargo made a $3.76 billion first-quarter profit, a 48 percent gain on the same period in 2010. The San Francisco-based lender’s mortgage-banking income declined 18 percent from a year earlier as originations fell.
The bank posted a $1 billion pretax gain due to stronger credit quality as it cut provisions for future losses on bad loans. Credit quality will continue to improve even “if the economy goes sideways,” Stumpf said.
Stumpf, who replaced Richard Kovacevich as CEO in 2007, said that financial industry regulations represented a “new normal” which have cost the bank income. Wells Fargo’s revenue fell 5.8 percent in the first quarter to $20.3 billion. The regulations were brought on by a slump in the economy and banks themselves, Stumpf said.
Wells Fargo faces an erosion of fees from overdrafts as well as a potential loss of income from debit cards due to federal regulations. Stumpf said he was optimistic the bank could replace some of the lost revenue.
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