Wells Fargo & Co. on Friday posted a 3.8% rise in net income, but shares edged down in early morning trading as a key measure of lending profitability declined and the bank's cost-cutting progress stalled.
Wells Fargo reported net income of $5.73 billion, compared with $5.52 billion a year earlier. Per-share earnings, reflecting the payment of preferred dividends, were $1.01 versus 98 cents a year earlier. Revenue slipped 1.5% to $21.07 billion. Analysts polled by Thomson Reuters expected per-share earnings of $1.01 on revenue of $20.84 billion.
While analysts have cut estimates on rival banks in recent weeks, estimates for Wells Fargo have held steady. Never a big trading firm, Wells Fargo has focused on generating revenue from its bread-and-butter businesses of commercial and consumer lending as rivals pulled away from some of those businesses after the financial crisis.
But Wells Fargo's net interest margin—a key profitability figure that measures the difference between what a bank makes on lending and what it pays depositors—narrowed to 3.15%, compared with 3.40% a year earlier and 3.20% in the prior quarter.
"They can't seem to get the net interest margin decreases to level off even as interest rates have been flat over past year. They need some light at the end of the tunnel on that one," said Erik Oja, analyst at S&P Capital IQ.
The San Francisco company has become a stock-market darling among bank investors, in part because it has avoided big losses and the worst of the regulatory penalties plaguing the industry. Investors have also valued the firm's consistency, making it the largest U.S. bank by market capitalization.
In the second quarter, Wells Fargo eked out a profit to generate its 16th quarter of year-over-year profit growth, based on data from FactSet. Investors were unimpressed however, as Wells Fargo's bottom line was again padded by equity gains, while the bank's expenses climbed from the first quarter.
Source: WSJ
