Wells Fargo profit up, but stock falls as revenue slips
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Wells Fargo & Co.’s profit jumped 21% as it sorted out bad-loan troubles and cut costs, but Wall Street slammed the San Francisco bank as its third-quarter revenue declined.
Some key measures of profitability also dropped at Wells Fargo amid the weak economy and falling interest rates. The bank’s shares plunged $1.88, or 7%, to $24.70 in midday trading, although its stock-market value, at about $130 billion, remained the highest in the industry.
Wells Fargo, the fourth-largest U.S. bank as measured by assets but the largest consumer lender, said Monday it earned $4.06 billion, or 72 cents per share, compared with $3.34 billion, or 60 cents per share, in the third quarter of 2010.
Loans and deposits both rose during the quarter. But revenue fell 6%, from $20.87 billion to $19.63 billion, as its income from interest, fees and trading declined.
Another megabank, New York’s Citigroup Inc., said Monday it earned $3.77 billion, or $1.23 per share, up from $2.17 billion, or 72 cents per share, in last year’s third quarter. Citi shares fell 36 cents, or 1.3%, to $28.04 at midday.
Archrival Bank of America Corp., which reports its earnings Tuesday, recently disclosed plans to start charging customers $5 a month for using debit cards, triggering waves of protest from consumers and politicians.
During the Wells Fargo earnings call, analyst Chris Kotowski of Oppenheimer & Co. suggested the $5 fee might become an industry standard. By his calculation, that would largely offset revenue big banks have lost as a result of the Federal Reserve cutting in half the amount they can charge merchants who accept debit cards for payments.
Wells Chief Executive John Stumpf was guarded in commenting on how his bank would proceed on that controversial front, referring to a pilot program, just started in a few states, of a $3 monthly fee for customers who make purchases with debit cards.
But Stumpf said Wells Fargo, while proceeding cautiously on raising fees, needs to be compensated for the cost of providing customers safe and easy access to their deposits, including online and mobile banking as well as debit cards and the biggest national network of more than 6,000 branches.
‘Our customers are going to tell us ... how they’ll pay for those services,’ Stumpf said.
Wells executives said they had taken note of Occupy Wall Street and related protests and expressed some sympathy for the protesters, given an economic recovery that has been too weak to reduce unemployment.
‘There’s a lot of frustration out there, a lot of pain,’ said Chief FInancial Officer Timothy Sloan, whose home in the Pasadena area was the site of one demonstration, in an interview.
But he said Wells Fargo is doing what it can to address the problems by increasing its lending, especially to small businesses, and by having modified 700,000 of the home loans it services, including writing down principal balances by a total of $4 billion.
‘We think it’s unfair that so much blame has been put on the banks, particularly Wells Fargo,’ Sloan said.
Analysts found few surprises in the mortgage business at Wells Fargo, the biggest U.S. home lender, as the bank continued to work through soured loans from the housing boom and saw its pipeline of new loans swell with refinancings.
Provisions for loan losses dropped to $1.81 billion in the quarter from $3.44 billion a year earlier, while the bank charged off as uncollectible 1.37% of its loans, down from 2.14% a year earlier.
However, its net interest margin, which measures the difference between the cost of deposits and earnings on loans, declined to 3.84% from 4.25% in the third quarter of 2010.
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--E. Scott Reckard
File photo: Big-bank protest, downtown L.A. Credit: Los Angeles Times / Irfan Khan
