Wells Fargo Mortgage Revenue Drops, Shares Fall

A Wells Fargo Bank Branch Ahead Of Earnings Figures
Craig Warga/Bloomberg via Getty Images
By Peter Rudegeair and Tanya Agrawal

Wells Fargo, the fourth-largest U.S. bank, reported a 39 percent drop in mortgage revenue for the second quarter as lending volume dropped, underscoring the urgency for the bank to find other sources of income growth.

The bank managed to boost earnings and meet analyst estimates through gains from investments in stocks and bonds among other areas. But that income could be difficult to repeat in coming quarters, analysts said.

Meanwhile, the pressure on Wells Fargo's mortgage business, one of its largest sources of revenue for years, is continuing and intense. The bank's shares fell 0.4 percent to $51.58.

Overall U.S. mortgage lending volumes have been falling for 15 months as rates have risen, cutting into demand to refinance home loans. This spring was also a weak home buying season compared with last year's, Chief Financial Officer John Shrewsberry told investors on a conference call.

"The purchase market is softer than we thought it would be," Shrewsberry said.

But Wells Fargo's mortgage volume declines were greater than the overall market in percentage terms, according to the Mortgage Bankers Association's estimates. That may be because last year many smaller banks were selling their loans to Wells Fargo, which in turn would package them into bonds to sell to investors under government programs, which counted as Wells Fargo's volume.

Much of those banks are now selling directly to investors under government programs, Chairman and Chief Executive Officer John Stumpf said in an interview. The bank is the largest U.S. mortgage lender.

This is the first quarter since 2009 that Wells Fargo didn't report an increase in earnings a share from the preceding quarter, ending a 17-quarter streak.

The second-quarter results reflect how hard a job Stumpf has in trying to boost revenue from other businesses.

Even as unemployment falls in the United States and the economy shows signs of recovery, loan growth has been tepid: the bank's loans, excluding pre-crisis assets it is winding down, rose just 2 percent in the second quarter from the first quarter.

Wells Fargo (WFC) is the first of the major banks to post earnings, and rivals likely faced similar headwinds.

Overall, Wells Fargo earned $5.42 billion, or $1.01 a share, in line with estimates from Thomson Reuters I/B/E/S. In the second quarter of 2013, the bank earned $5.27 billion, or 98 cents a share.

The rising U.S. stock market helped Wells Fargo in several ways. Its net gains from equity investments rose 121 percent to $449 million, while earnings from its wealth, brokerage and retirement business grew 25 percent to $544 million thanks in part to fees tied to higher market valuations.

Net gains from debt securities were $71 million compared with a loss of $54 million a year earlier.

Revenue slipped to $21.1 billion, from $21.4 billion in the second quarter of 2013, slightly beating expectations, according to Thomson Reuters I/B/E/S.

Wells Fargo made $47 billion of home loans, down from $112 billion a year earlier but up from $36 billion in the first quarter. Revenue from mortgage banking fell to $1.7 billion.

7 Simple Strategies for a Frugal, Prosperous Life
See Gallery
Wells Fargo Mortgage Revenue Drops, Shares Fall

Securing a favorable interest rate is a prime way to maximize savings. On a major loan repayment like a mortgage, a little upfront effort can save you considerable amounts for years to come. To cash in on this frugal hack, you need to get your credit in shape. That means checking your credit history, making payments on time (and in full), and reducing your debt to available credit ratio as much as possible. It means paying down your balances on all your credit card accounts. The higher your credit score, the lower your interest payments and the higher your savings.

Adjust your withholding exemptions so that your payments to Uncle Sam match your actual tax liability, and you won't wind up with a big refund come April. As exciting as it is to get that big check in the mail, that's money you've been loaning to the government for free rather than having it grow in your own savings and investment accounts. As of the start of April this year, the average tax refund was $2,831. That's $235 a months' worth of money that could be working for you.

Just 10 to 20 minutes on the phone with your cable company, cell phone rep, or any other service provider can result in recurring monthly savings through old-fashioned negotiation. If you're not getting anywhere after asking for a lower rate, ask for the cancellation (or retention) department and see what offers start to come in. If you're unable to haggle down to get the savings you want, you can always shop providers to get your service elsewhere -- probably with a new-customer discount rate, too.

While bulk buying can sometimes lead to unnecessary purchases and overspending, it's a great strategy for savings on nonperishable items like paper products, cleaning supplies and alcohol. When you stock up, you save on the unit price and the trips to the store to restock.

Other than the obvious benefits of reduced health care costs over time, exercising and living a healthy, smoke-free lifestyle can provide some more immediate savings on your insurance premiums.

More stuff equals more to maintain, clean and devote time and energy to. From the size of your home to the size of your clothing collection, more "stuff" generates more expenses. Downsize and watch your savings soar.

For each year after full retirement age that you delay taking Social Security benefits, you accumulate a permanent increase in your benefits of 5 to 8 percent until age 70. This one strategy can increase your Social Security retirement income by more than 25 percent. It would take a lot of penny-pinching to add up to that kind of income boost.
Read Full Story