Wells Fargo profits up despite steeper rates

 
Tim Wallace
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THE END of super-cheap mortgages hit Wells Fargo’s revenues in the final quarter of last year, the US bank has said, as higher rates meant fewer customers remortgaging.

The Federal Reserve’s tapering has started to impact on mortgage interest rates, as it slowly removes its stimulus as the economy grows.

However, Wells Fargo cut staff and bonuses to cut costs and reduced its provisions for bad debts, meaning profits rose 10 per cent in the quarter and 16 per cent on the full year.

The bank’s revenues came in at $20.7bn (£12.6bn) in the three-month period, down 5.5 per cent from $21.9bn in the same quarter of 2012.

Mortgage banking profits fell particularly sharply, down 49 per cent to $1.6bn.

But its non-interest expenses fell $800m to $12.1bn and the improving economy released $600m from its reserves.

As a result the bank’s profits increased by 10 per cent on the year to $5.6bn in the quarter.

Commission and bonus payments fell one per cent in the quarter to $2.35bn, helping bring down the costs.

Analysts praised the bank’s potential.

“With the company expected to produce 14.2 per cent return on equity over the next 12 months the price-to-book ratio of 1.6 seems fair,” said Saxo Bank’s Peter Garnry. “But with higher growth potential than its rival and momentum becoming stronger, the Californian bank has a very positive outlook.”

Return on equity increased 0.92 percentage points to 13.87 per cent.

Wells Fargo’s shares edged up 0.07 per cent on the day.