Wells Fargo revenue falls short on higher costs, mortgage weakness

Wells Fargo posted first-quarter revenue that missed analysts’ estimates as profit fell in the lender’s troubled community bank and expenses climbed.

The company’s shares dropped in early trading after Wells reported a 23% decline in mortgage banking revenue, worse than analysts predicted. Net interest margin, the difference between what a bank charges for loans and pays depositors, was unchanged from three months earlier at 2.87 percentage points, the San Francisco-based lender said in a press release Thursday.

“Expenses were elevated compared with last quarter, driven by typically-higher first quarter personnel-related expenses,” Chief Financial Officer John Shrewsberry said in the release. “Credit results improved, with lower net charge-offs and nonaccrual loans, and we benefited from lower income tax expense.”

Wells Fargo sign
A Wells Fargo & Co. sign sits on display outside the company's offices in San Francisco, California, U.S., on Tuesday, April 27, 2010. Wells Fargo & Co., the fourth-largest U.S. bank by assets and deposits, may raise its dividend once capital levels satisfy regulators and if the economic recovery continues, said Chief Executive Officer John Stumpf. Photographer: David Paul Morris/Bloomberg

Wells Fargo, 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, Shrewsberry has said.

The firm has had trouble attracting new retail-bank customers as it has grappled with scandal over employees opening bogus accounts. Customers have opened fewer checking accounts and submitted fewer credit card applications each month, compared with a year earlier, since regulators announced a $185 million settlement with the bank on Sept. 8.

Wells Fargo shares slid 1.4% to $52.40 at 8:12 a.m. in New York. The stock had dropped 3.6% this year through Wednesday, trailing the 2.7% decline of the 24-company KBW Bank Index.

First-quarter net income was $5.46 billion, or $1 a share, little changed from a year earlier. The average estimate of 27 analysts surveyed by Bloomberg was for adjusted profit of 97 cents a share. Revenue fell 0.9% to $22 billion, missing analysts’ $22.3 billion estimate. Mortgage revenue declined to $1.23 billion from a year earlier, missing the $1.25 billion average estimate of four analysts surveyed by Bloomberg.

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