Jan. 11 - Wells Fargo fourth-quarter profits surged 24 percent to a record high. But despite being the top home lender, it’s the mortgage business that has analysts worried. Bobbi Rebell reports.
Wells Fargo made a lot of money last quarter- profits were up 24 percent- a record. But investors sold the stock- in large part because fourth-quarter net interest margins- which measures how much money the bank makes from lending out money- fell. Susquehanna senior banking analyst Jack Micenko: SOUNDBITE: JACK MICENKO, SENIOR BANKING ANALYST, SUSQUEHANNA INTERNATIONAL GROUP (ENGLISH) SAYING: "That's an ongoing issue that I'd argue most of the banks that I cover are dealing with. And that is- you've got a 6 percent loan you made in 2007. That loan comes due 5 years later on a 5-year term in 2012 and now the prevailing rate is 3.5%. That's the pressure you are dealing with. You've gotten your deposit costs down as far as you can get them but there is still pressure on the loan yield side." REPORTER BRIDGE: REUTERS REPORTER BOBBI REBELL (ENGLISH) SAYING: "Mortgages are big business for Wells Fargo. They are the number one home lender in the nation- with about one in three loans." But they made fewer mortgage loans last quarter. And Wells Fargo was also criticized for a rise in expenses- as many rivals have been successfully cost cutting. Argus Research's John Eade SOUNDBITE: JOHN EADE, DIRECTOR OF RESEARCH, ARGUS RESEARCH (ENGLISH) SAYING: "In this last quarter their expenses were higher than the previous quarter and companies are trying to keep those expenses down if not reduce them and I think that is one of the reasons analysts were disappointed over expense control." Wells Fargo is the first major U.S. bank to report results- next week's list includes Bank of America, Citigroup, JP Morgan Chase and BNY Mellon, along with Goldman Sachs. Standard & Poor's Capital IQ's Erik Oja: SOUNDBITE: ERIK OJA, EQUITY ANALYST, STANDARD & POOR'S CAPITAL IQ (ENGLISH) SAYING: "I would say that some of the banks that report next week we should see a better story on net interest margin than with Wells Fargo and the other banks that report next week. Maybe they won't have the same powerful loan growth as Wells Fargo but they will have other sources of revenue." But analysts are worried about those other sources of revenue- saying it could be a slow quarter overall for those firms- as the affects of the Federal Reserve stimulus program fade away, and deal making and trading volume remain weak.