Wells Fargo & Co (WFC) Net Income Up On Lower Revenue and Huge Deposits

Wells Fargo & Co (NYSE:WFC) reported net income of $5.7 billion, up 4% from second quarter of last year, while diluted earnings per share (EPS) were $1.01, up 3% from second quarter 2013, but down from $1.05 from the previous quarter. This ended Wells Fargo & Co (NYSE:WFC)’s 17 quarters long streak of increasing earnings per share. The result was achieved despite – or thanks to – lower revenue of $20.1 billion, compared with $20.4 billion.

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Wells Fargo & Co (NYSE:WFC) posted return on assets (ROA) of 1.47%, which Fitch analysts called “very strong”, and return on equity (ROE) of 13.4%. Total mortgage originations were $47 billion, up 30.6% from the previous quarter’s $36 billion, but down from $112 billion from the last year. Wells Fargo & Co (NYSE:WFC)’s Chief Financial Officer John Shrewsberry reflected this on a conference call when he told investors that this spring was also a weak home buying season compared with last year’s.

The slump is typical for the overall U.S. mortgage lending, which is falling for the past 15 months, according to Reuters, as rates have risen, cutting into demand to refinance home loans. According to the video, the Wells Fargo & Co (NYSE:WFC)’s Chairman and Chief Executive John Stumpf said that the results reflect “strong credit quality driven by an improved economy, especially in the housing market”, citing also “the bank’s continued risk discipline”.

Total average loans and total average deposits grew, the later by 9% over the year to $1.1 trillion. Jim Cramer and other analysts from CNBC were impressed with the number, adding: “That took my breath away when I read it.[...] you see that number, and the first thing you think is, OK, did they put the number of zeroes correctly?”

They expressed their opinion that the large deposits are behind what they called “not up to snuff” interest margin, saying that “they can’t invest this, they have too much money”. Wells Fargo & Co (NYSE:WFC)’s net interest margin (NIM) is down five basis points from last quarter, as banks are squeezed by lower rates, which may be an important short-term concern, as mortgage business is for years one of the largest sources of revenues for Wells Fargo & Co (NYSE:WFC). Cramer’s opinion was not influenced by this, as he called Wells Fargo & Co (NYSE:WFC) “a juggernaut”.

The video report also suggests that this is the first time in at least six quarters that actual earnings per share beat the analysts’ predictions.

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