Wells Fargo profits rise despite hit to home mortgages

NEW YORK CITY (AFP) - US banking giant Wells Fargo Friday reported a 13 per cent rise in profits even as the results showed a big drop-off in home mortgages compared with the prior quarter.

Wells Fargo, the nation's largest mortgage originator, said third quarter earnings came in at US$5.32 billion (S$6.64 billion) on revenues of US$20.48 billion.

The results were strengthened by an improvement in credit quality, which enabled a net charge-off of US$975 million, down US$1.4 billion from the year-ago period.

Overall loans also increased. End-of-quarter loans came in US$812.3 billion, up from the US$800.2 billion reported last quarter.

But the results also showed how higher interest rates are crimping the bank's important mortgage business.

Wells Fargo, which recently overtook China's Industrial & Commercial Bank of China as the world's largest bank by market capitalization, in August cut 2,300 jobs in the US due to declines in mortgage refinancings in the wake of higher interest rates. Several other banks have also cut mortgage-related staff.

Wells Fargo said home lending originations sank to US$80 billion, compared with US$112 billion in the prior quarter, while applications fell to US$87 billion compared with US$146 billion.

"This was a solid quarter for Wells Fargo," said chief financial officer Tim Sloan.

"As expected, mortgage banking revenue was lower in the quarter as the recent increases in interest rates reduced refinance volume, but this impact was partially offset by improved credit and lower expenses." Wells Fargo declined 1.8 per cent in pre-market trading.