Wells Fargo & Co. announced yet another record quarter Friday, while rival
JPMorgan Chase & Co. revealed that its notorious bad trade cost it $5.8
billion, nearly three times its first estimate.
The contrast highlights how Wells Fargo's consumer banking focus has
benefited the lender as U.S. investment banks struggle with their greater
reliance on trading and potential exposure to eurozone financial woes. In
fact, with a current market capitalization of about $177 billion, San
Francisco-based Wells Fargo has overtaken JPMorgan as the country's largest
bank holding company by market cap, according to SNL Financial.
Wells Fargo, which employs 20,000 people in Minnesota, reported profits
of $4.6 billion in the second quarter, up 17 percent from a year earlier and
up 9 percent from the previous quarter. Profits were boosted by the bank's
home loan machine and cost-cutting, as well as setting aside $400 million less
for soured loans.
Revenue rose 4 percent from a year ago to $21.3 billion. Earnings of 82
cents per share beat expectations for 81 cents, based on poll of analysts by
Thomson Reuters.
It was Wells Fargo's 10th straight quarter of earnings per share growth
as it continues to defy the subpar economic recovery.
Wells Fargo's total interest income was largely flat. Total non-interest
income rose 6 percent from a year ago largely on mortgage banking fees,
service charges on deposit accounts and other fees.
"Wells is capitalizing on the dislocation of its competitors and the
company benefits from a flight to quality," equity analysts for Robert W.
Baird & Co. said in a report.
The solid earnings report comes a day after the nation's No. 1 mortgage
lender announced that it is paying at least $175 million to settle Justice
Department allegations that it discriminated against 34,000 black and Hispanic
mortgage borrowers between 2004 and 2009. At the same time it announced it was
shutting down its entire wholesale mortgage unit, which funds mortgages that
are originated, priced and sold by independent mortgage brokers and is about 5
percent of its funded home mortgage volume.
It continues to operate its separate correspondent mortgage business,
which buys mortgages from brokers who already have closed the loans.
The bank said Friday that its second-quarter operating losses increased
$47 million from the previous quarter to $524 million and that it included
additional litigation accruals related to the Justice Department settlement.
Wells Fargo has been riding a wave of mortgage refinancing driven by
record low interest rates, but mortgages for home purchases are increasing,
too, Wells Fargo chairman and CEO John Stumpf told analysts.
"Purchase volume was up over $19 billion, or 43 percent, from the first
quarter, indicating increased strength in the overall housing market where
we've seen increases in sales and pricing in markets throughout the country,
even in some of the hardest-hit areas during the downturn," Stumpf said.
The bank has bulked up with acquisitions over the past year, adding to
its stash of loans and business lines. In the past year it bought a portfolio
of loans backed by U.S. commercial property from Ireland's nationalized Anglo
Irish Bank and acquired London-based asset lender Burdale Financial Holdings
and the portfolio of Burdale Capital Finance Inc., from Bank of Ireland.
It also bought the North American energy lending business from BNP
Paribas and a $6 billion portfolio of short-term "subscription finance" loans
from German lender WestLB AG.
