Wells Fargo mortgage fees drop by a third as interest rates rise

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It was another tough quarter for Wells Fargo & Co.’s bread-and-butter product.

Mortgage fees at the nation’s biggest home lender declined by a third in the three months ended June 30 to the lowest in more than five years, while total average loans slipped 1% from a year earlier. Net income missed analysts’ estimates as the bank took a $481 million tax expense.

Lenders including Wells Fargo are battling for a smaller mortgage pie as rising interest rates make home loans more expensive and nonbank competitors take greater market share. Revenue from mortgage originations and sales dropped 33% in the quarter, the San Francisco-based firm said Friday in the statement.

Chief Executive Officer Tim Sloan had warned investors of “overcapacity” in mortgages at an investor conference in May.

In February, the Fed prohibited Wells Fargo from increasing assets until it fixes missteps involving misleading sales practices at its consumer bank. Since then, the nation’s third-largest lender by assets has faced more scrutiny, with the U.S. Department of Justice and Securities and Exchange Commission examining the wealth-management unit, a person familiar with the probes had said.

Wells Fargo shares fell 2.5% to $54.65 at 8:12 a.m. in early trading in New York. The stock dropped 7.7% this year through Thursday.

Here’s how Wells Fargo did:

Net income fell 11% to $5.2 billion, or 98 cents a share, from $5.86 billion, or $1.08, a year earlier.

Excluding the tax charge, per share profit was $1.08, missing the $1.12 average estimate of 27 analysts surveyed by Bloomberg.

Non-interest expense increased 3% to $14 billion as compensation costs climbed. Analysts expected a drop to about $13.5 billion.

Net interest margin, the difference between what a bank charges borrowers and pays depositors, increased 9 basis points from the previous three-month period and 3 basis points from a year earlier.

Efficiency ratio, a measure of profitability, improved to 65% from 69% in the first quarter. Sloan is targeting 55% to 59% in the long term, excluding litigation costs.

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Earnings Originations Commercial banking Wells Fargo
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