Wells Fargo posted a third-quarter profit that beat analysts’ estimates on gains in interest income from asset purchases and new loans.
Net income climbed 1.2% to $5.8 billion, or $1.05 a share, from $5.73 billion, or $1.02, a year earlier, the San Francisco bank said Wednesday. The average estimate from 27 analysts surveyed by Bloomberg was for earnings of $1.04 a share, excluding one-time items.
Chief Executive John Stumpf has used deposit growth -- more than $250 billion in the three years through June -- to support asset purchases from firms including General Electric Co. Last quarter the bank also used derivatives to lock in higher income by converting floating rates into fixed payments to take advantage of the Federal Reserve’s delay in raising interest rates.
“They have been very proactive about going out into the market” and buying loans, Shannon Stemm, an analyst at Edward Jones & Co. in St. Louis, said in a phone interview before results were reported. “They have the flexibility and the capital strength to be able to do it.”
The bank agreed this week to purchase $32 billion in assets and take on about 3,000 employees from GE. Wells Fargo said last month that it plans to buy most of the industrial firm’s railcar- and locomotive-leasing unit, and announced an agreement in April to acquire $9 billion of GE loans and finance purchases made by other companies. The April deal was completed in the third quarter.
The purchases have helped boost Wells Fargo’s ability to generate revenue from lending and other interest payments, known as net interest income, and should make the lender’s growth rate for that line item the “highest of peers,” Deutsche Bank AG analysts wrote in a Sept. 24 report.
Asset purchases have helped augment growth in areas like credit cards, auto loans and business financing, and counter a slump in mortgage lending.
Wells Fargo, the largest U.S. mortgage lender, accounted for about 14% of all originations in the second quarter, according to data compiled by Bloomberg Intelligence from Inside Mortgage Finance.
The six biggest U.S. banks may see total revenue decline in the third quarter for the first time this year, according to analysts’ estimates compiled by Bloomberg. Low interest rates and a global asset rout that pinched bond trading is expected to squeeze third-quarter revenue by 2.4% from a year earlier to $101.1 billion, the estimates show.
JPMorgan Chase posted third- quarter earnings Tuesday that missed analysts’ estimates as a slump in trading and mortgage banking drove revenue lower. Bank of America said Wednesday it swung to a profit of $4.51 billion in the quarter on lower expenses. Citigroup and Goldman Sachs Group are scheduled to release results on Thursday, while Morgan Stanley is slated to report on Oct. 19.