Wells Fargo Falls as Revenue Misses Wall Street's EstimatesBy
CFO cites higher first-quarter ‘personnel-related expenses’
Bank collects least mortgage revenue in the past two years
Wells Fargo & Co. fell after reporting first-quarter revenue that missed analysts’ estimates as the lender’s troubled community bank weighed on results.
Wells Fargo shares slid 3 percent to $51.53 at 1:08 p.m. in New York, the lowest since Nov. 29 and the worst performance in the 65-company S&P 500 Financials Index. The stock has dropped 6.4 percent this year.
The nation’s biggest home lender is facing a slowdown in its mortgage-banking business as rising interest rates crimp customer demand for refinancing. The unit also is suffering from decreased volume as branch workers make fewer mortgage referrals and lower reimbursements from the Department of Housing and Urban Development to cover foreclosure costs, Chief Financial Officer John Shrewsberry has said.
“It appears that last year’s customer account debacle is pressuring revenues and proving to be expensive to fix,” said Oppenheimer & Co.’s Chris Kotowski, adding that the bank’s loan-loss provisions and writes offs were better than he’d expected.
Wells Fargo reported a 23 percent decline in mortgage banking revenue from a year earlier and said new retail customer accounts fell for the seventh straight month in March as the firm struggles with scandal over the opening of bogus accounts. Net interest margin, the difference between what the bank charges for loans and pays depositors, was unchanged from three months earlier at 2.87 percentage points, the San Francisco-based firm said Thursday in a statement.
The firm has had trouble attracting new retail-bank customers as it has grappled with the scandal. Customers opened 35 percent fewer checking accounts in March compared with a year earlier, while credit-card applications were down 42 percent, according to the statement.
First-quarter net income was $5.46 billion, or $1 a share, little changed from a year earlier, the company said. The average estimate of 27 analysts surveyed by Bloomberg was for adjusted profit of 97 cents a share. Earnings were helped by lower-than-expected provisions of $605 million, compared with analysts’ $909 million estimate, and the release of $200 million in loan-loss reserves.
Wells Fargo profit beat estimates only because of the reserve release and a tax-rate change, according to Atlantic Equities LLP’s Christopher Wheeler.
Revenue fell 0.9 percent to $22 billion from a year earlier, missing analysts’ estimates of $22.3 billion. Mortgage revenue declined to $1.23 billion, compared with the $1.25 billion average estimate of four analysts surveyed by Bloomberg. The pipeline for new home-loan applications fell to $28 million, 7 percent less than three months earlier.
Profit from community banking dropped 8.7 percent to $3 billion on $521 million less revenue and $385 million more expenses. The bank made fewer new auto loans, decreasing originations 29 percent from a year earlier to $5.5 billion as it raised underwriting standards. Total loans at the end of the first quarter were $958.4 billion, down $9.2 billion from year-end, driven by a slowdown in credit-card account openings and lower card balances, and a drop in junior lien mortgage loans such as home-equity lines of credit.
Wealth and investment management, one of the areas where the bank has sought to gain market share, posted profit of $623 million, up 22 percent on higher fees and interest revenue.
The wholesale division, which includes the investment and corporate bank, raised profit 10 percent to $2.12 billion as average loans increased and it set aside less money for soured energy bets.