AP – Wells Fargo, United State’s (United States) largest mortgage lender, saw its second-quarter revenue and profit decline as rising interest rates pushed people out of the housing market.
The San Francisco bank earned USD3.1 billion in the period, or 74 cents per share, coming up short of the 80 cents per share forecast by analysts surveyed by data provider FactSet.
Revenue was USD17 billion, down 16 per cent from last year and below the USD17.5 billion Wall Street projected. The bank had revenue of USD20.3 billion and earnings per share of USD1.38 in the same period a year ago.
Investors appeared less concerned with the bank’s topline numbers and more impressed with an eight per cent increase in loan balances, however. Wells saw growth in consumer and corporate lending and new credit card products.
Wells Fargo shares climbed seven per cent in afternoon trading. This week, Wells Fargo launched its fourth new credit card since the beginning of the year and it expects to offer several more rewards-based cards.
The bank said its new credit card accounts are up more than 60 per cent from a year ago and credit card spending increased 28 per cent.
Wells’ revenue from its home lending division fell by 53 per cent in the quarter, as the housing market cooled in the face of rapidly rising interest rates. Mortgage loan originations, including refinancing, fell sharply in the quarter. The Mortgage Bankers Association reported on Wednesday that mortgage applications have declined 14 per cent from last year and refinancings are down 80 per cent.
Sales of existing homes have fallen for four straight months, during what is generally the busiest time of year in real estate.
Average long-term US mortgage rates rose to 5.51 per cent this week and are expected to move even higher as the Federal Reserve continues its aggressive measures to combat four-decade high inflation.
Most economists expect the Fed to raise its benchmark lending rate by at least another half-point when it meets later this month. Last month it raised the rate by three-quarters of a point, it’s biggest single increase since 1994. Wells did see an increase in interest income, which jumped 16 per cent to USD10.2 billion from USD8.8 billion in last year’s second quarter.
The bank said that its non-interest income declined by 40 per cent, partly reflecting a decline in deals and fewer companies going public. The bank wrote down USD576 million in losses related to its venture capital investments as the stock market continued its decline in the second quarter.
Like other big banks, Wells also added to its loan-loss provisions – setting aside USD580 million to cover potentially bad loans during economic downturns.
