GE loan book helps Wells Fargo report first profit rise in three quarters

Reuters News
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Posted: Oct 14, 2015 8:07 AM

By Richa Naidu and Rachel Chitra

(Reuters) - Wells Fargo & Co <WFC.N>, the biggest U.S. residential mortgage lender, reported a rise in quarterly profit for the first time in three quarters on Wednesday, helped by its purchase of commercial loans from General Electric Co <GE.N>.

The San Francisco lender has been using its hefty balance sheet to diversify its business as low interest rates have prevented banks from capitalizing on their growing deposit base.

Some analysts also believe the housing market is at or near a peak, while the U.S Federal Reserve has created further uncertainty by indicating it will soon raise interest rates.

Wells Fargo, whose shares were down about 1.4 percent in premarket trading, agreed earlier this year to buy a portion of GE's commercial real estate loans worth $9 billion.

That acquisition helped to drive a 13 percent increase in commercial loans to $447.34 billion in the third quarter.

In its latest deal, the bank said on Tuesday it would buy a portfolio of commercial loans and leases worth more than $30 billion from GE for an undisclosed amount.

Nomura analysts said the deal could add 3-4 percent to earnings per share in 2016.

Wells Fargo, the No. 4 U.S. bank by assets, said its net income applicable to common shareholders rose 0.65 percent to $5.44 billion, or $1.05 per share, in the three months ended Sept. 30 from $5.41 billion, or $1.02 per share, a year earlier.

Analysts on average had expected earnings of $1.04 per share, according to Thomson Reuters I/B/E/S.

Mortgage banking revenue fell 2.7 percent to $1.59 billion, accounting for about 15 percent of non-interest income.

Applications for U.S. home loans have fallen by about a quarter since mid-January, according to the Mortgage Bankers Association.

The bank made $55 billion of home loans in the quarter, up 15 percent from a year earlier but down 11 percent from the second quarter.

JPMorgan Chase & Co <JPM.N>, the second-biggest U.S. mortgage provider, said on Tuesday its mortgage banking revenue declined 23 percent to $1.6 billion in the third quarter.

Wells Fargo's net interest margin - the difference between the rates at which the bank borrows and lends - fell to 2.96 percent in the quarter from 3.06 percent a year earlier.

Net interest income rose 4.7 percent to $11.46 billion.

Up to Tuesday's close of $51.86, Wells Fargo's shares had fallen 5.4 percent since the start of the year, in line with the 5.13 percent decline in the KBW index of bank stocks <.BKX>.

(Reporting by Richa Naidu and Rachel Chitra in Bengaluru; Editing by Ted Kerr)