Wells Fargo & Co., the most valuable U.S. bank and largest mortgage lender, dropped 4 percent in New York trading after reporting a record third-quarter profit that was marred by narrower profit margins.
The bank fell $1.42 to $33.76 at 9:31 a.m., the most since June, after posting a 22 percent rise in net income to $4.94 billion, or 88 cents a share, from $4.06 billion, or 72 cents, a year earlier, according to a statement from the San Francisco- based company. While record-low rates spurred homeowners to refinance, boosting the mortgage unit, that also led to less interest income on the bank’s loans and other investments.
Chief Executive Officer John Stumpf, 59, has taken market share in U.S. mortgages, where the bank accounted for 1 in 3 home loans at midyear. That helped blunt the impact of lower interest rates as older, higher-yielding investments expired and the bank said it took more cautious stance by reinvesting in shorter maturities.
“Loan growth is slow and net interest margins are falling,” Jennifer Thompson, a bank analyst at Portales Partners LLC, said in an interview before the results were released. “The more fee-income business you have, the better off you are at this point in the cycle because the spread business is under pressure.”
Mortgage banking helped offset a 0.25 percentage point decline in the net interest margin, the difference between what the bank makes on loans and pays for funds, to 3.66 percent, the bank said. The margin was 3.91 percent at the end of June.
The drop exceeded guidance from Chief Financial Officer Timothy Sloan, who said Sept. 11 the third-quarter margin might narrow by about the same as last year’s 0.17 percentage point.
“While the economic and interest-rate environments continue to present challenges for us and our industry, our diversified model and focus on our customers continued to produce strong quarterly results,” Sloan said in the statement.
Revenue advanced 8.1 percent from a year earlier to $21.2 billion and was little changed from the second quarter. Mortgage banking income rose to $2.81 billion, up 53 percent from last year’s third quarter, according to the company. The total declined $86 million from the second quarter. Wells Fargo said guidance from regulators compelled the bank to write down the value of some performing consumer loans.