SAN FRANCISCO (
became the last of the big-four money center banks to handily top earnings expectations on Wednesday - largely the result of a decline in expenses as revenue remained constrained.
Wells earned $3.34 billion in the September quarter on revenue of $20.87 billion; $3.15 billion, or 60 cents per share, was applicable to common shareholders.
Analysts had estimated earnings of 55 cents per share on $20.95 billion, on average, according to
. Profits were up 9% from the previous quarter and 3% from the year-ago period; revenue dropped 2% on a sequential basis and 7% year-over-year.
Bank of America
reported similar trends over the past week.
Shares of the San Francisco-based bank were down 1.6% at $24.16 in pre-market trading just before 9 a.m., reversing gains earlier in the day.
Part of Wells' profit climb came from $650 million in "reserve releasing," or letting go of excess capital held against bad loans that are performing better than expected. CFO Howard Atkins also cited strong deposit growth as well as some signs of improvement in loan demand, though Wells' overall loan portfolio continued to decline. The bank ran off $6.2 billion worth of high-yielding, though risky, loans.
As Wells Fargo worked to replace those assets - which mostly came from the Wachovia merger - the low-interest-rate environment made it difficult to keep up the pace of income. Wells' net interest income - or the difference between its borrowing rates and the interest rates it charges for loans - fell $300 million from the previous quarter. The bank has also begun to rely less on "economic hedges," like interest-rate swaps and mortgage-backed securities, to offset risk on its
mortgage-servicing portfolio. As a result, mortgage servicing income fell by $702 million despite record demand for new originations.
The San Francisco-based bank also outlined $380 million in revenue reductions
related to "Regulation E" and a change to overdraft policy, two of the most expensive items of regulatory reform for big consumer banks.
However, a sharp decline in expenses helped to offset the revenue headwinds. Net charge-offs fell 9% on a quarterly basis and 24% year-over-year to $4.1 billion, as credit quality continued to improve. The reduction in reserves also helped to boost Wells' results - a trend management expects to continue.
"Absent significant deterioration in the economy," said Chief Risk Officer Mike Loughlin, "we currently expect future reductions in the allowance for loan losses."
Even though Wells is spending a lot on foreclosures and loan modifications, and investing heavily in certain divisions, its noninerest expenses also declined $493 million due to lower restructuring and litigation expenses. Atkins expects those costs to come down further as well, and CEO John Stumpf stayed firm in his position against a moratorium - a temporary strategy that other big banks like JPMorgan and Bank of America have pursued while sorting out paperwork errors.
"We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate," said Stumpf. "For these reasons, we did not, and have no plans to, initiate a moratorium on foreclosures."
-- Written by Lauren Tara LaCapra in New York
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