Wells Fargo, the world's most valuable bank, posted a third-quarter profit that matched analysts' estimates as mortgage banking revenue fell from the previous three-month period.

Net income rose 2.7% to $5.73 billion, or $1.02 a share, from $5.58 billion, or 99 cents, a year earlier, the San Francisco-based lender said Tuesday in a news release. That met the average estimate of 25 analysts surveyed by Bloomberg.

Chief Executive Officer John Stumpf, 61, faces slackening demand for mortgages as the housing market shifts away from a refinancing boom that propelled profits in prior years. With interest rates still near record lows, Wells Fargo's net interest margin, a key measure of profitability, fell to the lowest in at least two decades in the second quarter.

"Net interest margins will go up when interest rates rise, the question is how do you bridge the gap between now and then?" Jennifer Thompson, an analyst at Portales Partners LLC, said in an interview before the results were announced. "It has to be loan growth."

Wells Fargo shares have climbed 11% this year, the best performance in the 24-company KBW Bank Index, which has dropped 1.2%.

Mortgage refinancings that once fueled profits at the biggest U.S. banks have slowed as interest rates rose from historic lows. At the same time, mortgages for new home purchases may climb to $195 billion by next year's third quarter, from $115 billion in the first three months of 2014, according to estimates from the Mortgage Bankers Association.

Wells Fargo accounted for about 16.3% of U.S. home loans in the second quarter, compared with 15.9% in the preceding three-month period, according to data compiled by Bloomberg.

Earlier today, JPMorgan Chase reported a $5.6 billion third-quarter profit, compared with a year-earlier loss, as a surprise gain in fixed-income trading at the biggest U.S. bank helped boost revenue. Citigroup said profit rose 6.6% as bond-trading revenue climbed and lending improved.

 

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