Wells Fargo & Co. said third-quarter profit increased 22 percent as the cheapest interest rates in history spurred refinancing.
Net income advanced to a record $4.94 billion, or 88 cents a share, from $4.06 billion, or 72 cents, a year earlier, the San Francisco-based bank said today in a statement. That beat the 87-cent average estimate of 33 analysts surveyed by Bloomberg, with some forecasts excluding selected one-time items. The net interest margin narrowed, and Wells Fargo shares fell 2.7 percent in early New York trading.
Chief Executive Officer John Stumpf, 59, has taken market share in U.S. mortgages, blunting weak growth in other lending and the impact of record-low rates on profit margins. The bank accounted for 1 in 3 home loans at midyear, with more than a quarter of all its fees coming from originations and servicing.
"The one big positive is clearly mortgage origination revenues," Richard Staite, an analyst at Atlantic Equities LLP in London, said in a phone interview before results were announced. "Rates will remain at this level or potentially drop further and ultimately that will drive a recovery in the housing market."
Revenue advanced 8.1 percent from a year earlier to $21.2 billion and was little changed from the second quarter. Mortgage banking income rose to $2.81 billion, up 53 percent from last year's third quarter, according to the company. The total declined $86 million from the second quarter.
Results from units including asset management, credit and debit cards, and brokerage services improved from the second quarter, the bank said.
"While the economic and interest rate environments continue to present challenges for us and our industry, our diversified model and focus on our customers continued to produce strong quarterly results," Chief Financial Officer Timothy Sloan said in the statement.
The average fixed rate on a 30-year mortgage fell to 3.38 percent Sept. 26, according to Bankrate.com. Nationwide originations probably climbed 33 percent in the third quarter from a year earlier to $412 billion, according to estimates from the Washington-based Mortgage Bankers Association.
Mortgages have also brought U.S. banks more than $84 billion in costs tied to shoddy home loans and foreclosures since the start of 2007, according to data compiled by Bloomberg.
Wells Fargo was sued by the U.S. for hundreds of millions of dollars in damages this week over claims the bank made reckless mortgage loans that defaulted and caused losses for a federal insurance program. The conduct spanned more than a decade, according to a statement from U.S. Attorney Preet Bharara. Wells Fargo denied any wrongdoing and said it will vigorously defend itself.
Wells Fargo was little changed at $35.18 in New York trading yesterday, bringing this year's gain to 28 percent and the firm's market value to about $186 billion, the highest for any U.S.-based bank. Berkshire Hathaway Inc., run by billionaire Warren Buffett, is the biggest stockholder with more than 7 percent of the common shares, according to data compiled by Bloomberg.
Analysts and investors are looking for signs that banks will be able to produce a sustained and more diverse stream of revenue in a U.S. economy that's expanding at less than 2 percent annually. The 25 largest commercial banks held $4.13 trillion in loans and leases in the week ended Sept. 26, a 0.7 percent gain from the end of June, according to the Federal Reserve. Commercial and industrial loans climbed 3 percent over the same period to $794 billion, central bank data show.
