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Wells Fargo posts record earnings in fourth quarter

Mortgages tend to get a lot of attention at Wells Fargo, and rightly so – the bank is the country’s largest home lender.

But executives there took pains Tuesday to tout success in other areas of the bank as mortgage revenue has increasingly been tough to come by.

Wells Fargo reported earning $5.4 billion for common shareholders in the fourth quarter, beating Wall Street estimates and continuing the bank’s streak of record profits. Wells has now posted record earnings for 11 quarters in a row.

Though mortgage revenue was down significantly, executives highlighted growth elsewhere. Wells Fargo’s investment banking market share grew, and the bank posted double-digit income increases in business lines such as credit card, insurance, trading, and wealth, brokerage and retirement.

Wells Fargo was also able to release $600 million it had previously set aside to cover bad loans, owing to a strengthening economy.

The $1 per share the San Francisco bank earned was up 1 percent from last quarter and 10 percent from the year before. The bank maintains its largest employee base in Charlotte, a legacy of its 2008 acquisition of Charlotte-based Wachovia.

Still, revenue fell 6 percent from the year before, primarily because of a sharp decline in mortgage banking income.

The bank’s mortgage business was nearly half of what it was last year as a massive shift in the market took hold. While historically low interest rates fueled a refinancing boom in 2012, a rise in those rates beginning early in 2013 slowed refinance volume significantly.

While refinances made up 65 percent of Wells Fargo’s mortgage volume in 2012, they now account for just 32 percent, Chief Financial Officer Tim Sloan told analysts on a conference call.

Shannon Stemm, a bank analyst with Edward Jones, said Wells and its peers are having a hard time growing revenue amid low interest rates and lackluster appetite for loans.

“All of the banks are grappling with this issue right now,” she said. While Wells has grown its deposits, “they don’t have the demand on the loan side to deploy it.”

As the economy improves, lending should pick up, she said. But for now, she said consumers have been reducing their debt and have not been taking out many new loans.

So once again, Wells’ profits came largely on the strength of cost cutting. The bank eliminated 1,100 mortgage fulfillment positions in the fourth quarter, in addition to 5,300 announced the quarter before. Wells Fargo laid off more than 400 of its Charlotte mortgage workers in August and September as the job cuts began. A later round of layoffs in October affected an undisclosed number in Charlotte.

The fourth-quarter results also cap a record-setting year for Wells Fargo. The bank earned $20.9 billion for shareholders, or $3.89 a share, over the 12 months. That’s up 16 percent from the year before.

CEO John Stumpf told analysts he feels the bank is in a better position now than it has been in the past five or six years. The Wachovia integration has been completed; capital and liquidity levels have improved; the bank has put legal problems behind it, and fewer loans are going bad.

The economy and housing market, too, will find themselves on firmer ground, he said.

“Am I saying there’s a full recovery and there’s going to be a watershed moment this year? No,” Stumpf said. “But I’m starting to hear more things from more prospects about buying a car, building a house, starting a business.”

The bank’s shares closed up less than a tenth of a percent Tuesday, at $45.59.

Bank of America will report its fourth-quarter results Wednesday morning. The Charlotte-based bank is expected to post a profit significantly higher than the year before, and to cap off its best year since 2007. Staff writer Deon Roberts contributed.

Dunn: 704-358-5235; Twitter: @andrew_dunn
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