The U.S Largest mortgage lender, Wells Fargo & Co (NYSE:WFC), opened the banking earnings season by posting a 4% profit growth but failed to beat previous quarter earnings for the first time in five years. The company’s chief financial officer, John Shrewsberry on Bloomberg said it was a great quarter for the company as revenue and net income continued to improve. The CFO is confident on the company posting a $5.7 billion net income for the quarter on revenue, loan and deposit growth with impressive credit ratings.
“We put up a number of $5.7 billion on net income this morning on revenue growth, on loan growth, on deposit growth with great credit statistics. So it was easy for me being the first quarter, and I think it reflects things are working well at Wells Fargo” said Mr. Shrewsberry
Despite experiencing a dip for the first time in 17-quarters in terms of growth, Wells Fargo & Co (NYSE:WFC) was able to generate increased revenue for the quarter with pretax profit also increasing. The biggest concern raised by many investors in the company is increased legal expenses that reached $205 million which should considerably eat into the company’s cash balances should the trend continue into the next quarter.
Another concern for Wells Fargo & Co (NYSE:WFC) is the fact that its net interest rates margin seem not to stabilize as it narrowed to 3.15% from 3.4% a year ago and 3.2% the previous quarter. The rate at which the bank is receiving deposits is high, making it extremely difficult to stabilize the margins.
“We grow our deposits year over year by $90 billion it is hard to put $90 billion to work and loans over that same period of time So we end up with cash building in liquidity accounts, and sometimes invested in securities,” said Mr. Shrewsberry.
Wells Fargo & Co (NYSE:WFC) mortgage net income was down by 40% compared to a year ago with the CFO saying it was because of the seasonality of the mortgage business. The other probable cause according Mr. Shrewberry is the fact that people are not buying homes as earlier hoped although he remains optimistic on the same improving in the coming quarters having improved by 30% compared to the previous quarter.