Wells Fargo profits rise, as it takes on GE deals

Wells Fargo reported third-quarter earnings on Wednesday.
Wells Fargo reported third-quarter earnings on Wednesday. Bloomberg

Wells Fargo on Wednesday said its profits rose 1 percent in the third quarter, as the San Francisco-based bank boosted total loans and revenue.

The earnings report came a day after Wells announced a deal to buy another big chunk of assets from General Electric, which is shedding most of its financial services unit. The bank’s GE purchases have already helped increase commercial loans, but likely won’t bump up earnings in the coming year because of merger expenses, executives said.

“We look at this as a long-term value-add to the company,” CEO John Stumpf said in a conference call with analysts.

The bank reported net income of $5.8 billion, or $1.05 cents per share, compared with a profit of $5.7 billion, or $1.02 per share, in the same period a year ago. Analysts polled by Bloomberg had been expecting earnings of $1.04 per share in the current quarter.

The bank’s total loans increased 2 percent to $903.2 billion from the previous quarter. But the bank’s net interest margin – a key measure of profitability from lending – fell to 2.96 percent from 2.97 percent in the previous quarter, as interest rates remain low.

Total revenue increased 3 percent from a year ago to $21.9 billion, while total expenses climbed 1 percent to $12.4 billion.

During the quarter, total employees dipped by 600 from the previous quarter to 265,200. Last month, Wells said it was laying off 182 mortgage workers nationwide, including 36 in Fort Mill, S.C., and Charlotte, amid a decline in delinquent home loans and lower demands from homeowners to refinance mortgages.

The company, which bought Wachovia in 2008, has its biggest employee hub in Charlotte.

While the bank beat estimates, analyst Scott Siefers at Sandler O’Neill + Partners said he was looking for slightly better revenue from loans and fees. “All things considered, the (quarter) was OK, but we had simply hoped for a slightly stronger performance,” he wrote in a research note Wednesday.

The bank’s shares fell less than 1 percent to $51.50 on a down day for financial markets.

On Tuesday, the bank said it planned to take on $32 billion in assets and 3,000 employees from GE, which is divesting most of its financial services unit to focus on its industrial businesses. This followed Wells’ previous deals with GE to buy real estate assets and a railcar services unit.

The real estate purchase has already closed, but the commercial finance and railcar deals aren’t expected to be completed until early next year. The bank hasn’t disclosed financial terms.

The railcar and commercial finance businesses are primarily headquartered in the Chicago and Dallas areas, and there are no plans to change that, Chief Financial Officer John Shrewsberry told analysts.

Wells Fargo emerged from the financial crisis stronger than many of its peers, and the GE deals highlight the bank’s ability to grow through acquisitions while rivals such as Charlotte-based Bank of America and New York-based Citigroup focus on streamlining operations.

While relatively small for a bank with $1.75 trillion in assets, the recent purchases are still the largest Wells Fargo has disclosed in some time, Siefers, the analyst, wrote in a report this week. Wells is the fourth-largest U.S. bank by assets but is edging closer to Citigroup, which had $1.83 trillion at the end of July.

“This year’s series of deals with GE Capital is very representative of (Wells Fargo’s) unique position to capitalize upon market dislocation with its strong capital and funding bases,” Siefers wrote.

Stumpf, however, said Wells will now be focusing on integrating its recent acquisitions, rather than seeking out more big purchases. “This is a lot to save grace over,” he said.

Rick Rothacker: 704-358-5170, @rickrothacker