As the largest U.S. mortgage lender, Wells Fargo is often looked at as a bellwether for the housing market as a whole. On Tuesday, CEO John Stumpf described that market as facing a list of challenges holding back its recovery from the bursting of the housing bubble.
“While the residential real estate market has definitely gotten better ... it has not fully recovered,” Stumpf told analysts on a conference call for the bank’s third-quarter financial results.
The San Francisco-based lender posted $5.7 billion in profit in the quarter, up 3 percent from a year ago. Its earnings per share of $1.02 were in line with Wall Street consensus estimates.
Wells, the fourth-largest U.S. bank by assets, reported an increase in lending and higher overall revenue, despite recording much lower demand from consumers for home loans compared with a year ago.
Revenue was $21.2 billion, up 4 percent from a year earlier.
Among other highlights, the bank reported 39.7 percent of its customers carry its consumer credit cards, compared with 36 percent a year ago. It also reported making $7.6 billion in auto loans in the quarter, up 9 percent.
The bank’s results were also helped by fewer bad loans being written off, a sign borrowers are doing a better job of repaying them. In the quarter, Wells benefited from $300 million it no longer had to set aside to cover loans that go sour.
The bank’s stock closed Tuesday at $48.83, down 2.7 percent.
Stumpf said he is optimistic overall about the U.S. economy as household wealth is at an all-time high, and consumer debt is at its lowest level in more than 30 years.
But he also voiced concerns, saying “the path to a full economic recovery remains uneven.”
Wells Fargo made $48 billion in home loans in the third quarter. That’s down by about half from the $80 billion it made a year ago. Its mortgage applications fell to $64 billion, a decline of $23 billion.
Like other lenders, Wells Fargo is dealing with a mortgage application decline as fewer consumers are refinancing their loans following last year’s rise in interest rates.
Stumpf said other factors are hurting the housing market: slow household formation, an increase in student debt, low supplies of homes for sale and tougher lending standards for borrowers – including, he said, those being imposed by Wells Fargo.
Stumpf said lenders are imposing the additional standards out of fear of being made to repurchase the mortgages by the government-backed agencies that buy them. Since the financial crisis, Fannie Mae and Freddie Mac have forced banks to buy back loans that go bad.
Jim Sinegal, an analyst with Morningstar, said Wells Fargo’s latest quarterly results show the U.S. economy is improving – just not very quickly.
“We’re still not seeing a return to normal,” he said.
Also Tuesday, JPMorgan Chase & Co. and Citigroup reported their third-quarter results.
JPMorgan, the largest U.S. bank by assets, posted net income of $5.6 billion after reporting a loss of $380 million the same period last year. Citigroup, the third-largest U.S. lender, posted profit of $3.4 billion, up from $3.2 billion a year earlier.
Charlotte-based Bank of America, the second-largest U.S. lender, reports third-quarter results Wednesday.