Wells Fargo Profit Jumps, but Mortgage loan Organization Slows

Wells Fargo WFC -0.85% & Co. posted a larger-than-expected 24% rise in fourth-quarter net income despite signs that a mortgage-refinancing boom that has boosted profits at a number of large banks may be fading.

But investors focused on a second consecutive quarterly decline in a figure analysts use to gauge future gains in the lucrative home-loan small business.

In addition, a surge of deposits and near record-low interest rates continued to squeeze profit margins at the fourth-largest U.S. bank by assets.

The drop in the San Francisco company's mortgage loan pipeline is "likely to be a source of concern," said Citigroup C -1.14% analyst Keith Horowitz.

Overall, fourth-quarter net income was $5.09 billion, or 91 cents a share, compared with the year-ago $4.11 billion, or 73 cents a share. Revenue rose 6.3% from a year earlier to $21.95 billion. The figures beat Wall Street analysts' consensus estimates.

Shares of Wells Fargo, up 22% over the past year, dropped 30 cents, or 0.8%, to $35.10 amid a broad pullback in financial shares.

A $30 billion rise in deposits during the quarter, to $945.75 billion, underscores an industrywide struggle to make new loans; credit-worthy borrowers are scarce amid soft employment growth and stagnant incomes.

Chief Executive John Stumpf said on a call with analysts that the company feels "no urgency" to put the excess funds to work. "Virtually all these deposits are part of relationships," he said. "This is going to benefit this company for years and years and years to come."

Wells Fargo currently lends out about 80% of its deposits, while banks typically like their loan-to-deposit ratio to be near 100%. Chief Financial Officer Timothy J. Sloan acknowledged the slow pace of economic growth has affected the bank's ability to lend. "It's not where we'd like it to be," he said.

As a result of the deposit inflow, net interest margin?aan important gauge of lending profitability?awas 3.56%, down from 3.66% in the third quarter and illustrating the impact of low interest rates on profits. "I think you have to recognize that this interest-rate environment is very difficult," said Fred Cannon, an analyst with Keefe, Bruyette & Woods.

The results also point to early signs that an end may be coming for the U.S. home-refinancing boom, which has been spurred by low interest rates and has resulted in a lucrative stretch for large home loan banks including Wells Fargo and J.P. Morgan Chase JPM -0.02% & Co.

Mortgage-banking income for the fourth quarter totaled $3.07 billion, up 30% from a year earlier. But mortgage loan originations fell 10% from third-quarter levels to $125 billion, and the company's unclosed-mortgage pipeline dropped for the second quarter in a row, tumbling 16% to $81 billion at year-end from $97 billion at Sept. 30.

The drop in the mortgage loan pipeline is especially important to Wells Fargo, which has become the nation's biggest home loan lender as rivals such as Bank of America Corp. BAC -1.27% have pulled back from the organization amid hefty losses. Early signs show that Wells's U.S. mortgage-market share slipped slightly, according to Mr. Sloan, but full numbers won't be known until other banks report earnings.

Mr. Cannon said it is unclear if the pipeline at Wells has slowed because the bank is tightening its standards or if its market share has slipped.

But Paul Miller, an analyst with FBR Capital Markets, cautioned against reading too much into the numbers.

The second and third quarters tend to be stronger ones for home loan production.

"A lot of people are looking at the pipeline decline and saying it's the beginning of the end," he said. "I think it's more seasonality than anything else."

Mr. Sloan said he didn't know if the refinancing boom was coming to an end, but said "it's prudent to plan for an environment where volumes come down and margins come down."

Total loans at the bank rose 4% from a year earlier to $799.6 billion. Wells kept on its book some $10 billion of mortgages, forgoing fees that lenders can reap when selling loans to the government-backed mortgage loan investors Fannie Mae FNMA 0.00% and Freddie Mac FMCC -1.69% but adding to the company's income stream.

Wells recorded a $644 million fourth-quarter pretax charge for its portion of a foreclosure settlement announced earlier this week.

21game

NEWSMAKER-US security chief tests "future for aviation" with 787 critique

When Michael Huerta joined the Federal Aviation Administration as its second-in-command in 2010, grumbles spread with the business: This was a job transportation official but an outsider to your aerospace planet.

Now, Huerta is with the helm of your FAA and has become thrust right into a quite public overview of what exactly is witnessed since the potential of aviation.

Huerta's FAA is heading up a wide-ranging evaluation on the Boeing 787 Dreamliner, a carbon-fiber marvel which has been bedeviled previously week by incidents which include a battery fire, an oil leak, a wiring dilemma, brake complications, and also a cracked cockpit window.

U.S. transportation officials and Boeing say the plane is risk-free to fly but they will need to consider a in depth seem to guarantee there are not flaws that really should be remedied.

The evaluation can be a check of Boeing's bet on technological developments in flight as well as a check of your FAA's certification approach, which deemed the 787 good-to-go in August 2011 just after some eight many years of analysis.

But it can be also a personalized check for Huerta: Will this aviation outsider have the ability to strike the proper stability in between fostering innovation inside the skies and making certain that security stays the No. one priority.

Huerta's public transportation occupation started off while in the 1980s when he was commissioner of New York City's Division of Ports, Worldwide Trade and Commerce.

He then became executive director from the Port of San Francisco, ahead of serving a series of senior positions in the U.S. Transportation Division during the 1990s.

After a stint inside the private sector as well as a turn as managing director in the 2002 Olympic Winter Video games, Huerta returned to government and became the FAA's deputy administrator in June 2010.

Huerta unexpectedly rose towards the top rated in the FAA in December 2011 right after then-head Randy Babbitt resigned as a result of a drunk-driving charge that was later on dismissed.

In a different sudden turn, Huerta needed to enable anchor a press conference for the Boeing snafus, just two days soon after officially currently being sworn in to head the FAA this week.

Huerta produced a point of discussing the 787's contribution to innovation, calling its engineering "the potential for aviation."

"The Dreamliner is actually a technologically pretty superior plane," Huerta explained at Friday's press conference. "I feel this aircraft is safe and sound, and what we're seeing are troubles linked with bringing any new technologically innovative product or service into services."

Whilst people comments may well be soothing overtures to sector, professionals mentioned Huerta will even really need to reassure any critics on the FAA's capability to supply on its dedication to security.

"The FAA's track record is about the line right here, as well, since they did certify the airplane," explained Leeham Co aerospace analyst Scott Hamilton. "The FAA is as deep within this as Boeing."

"REALLY SHARP"

Although some sector insiders have been at first wary of Huerta's aerospace chops, he has due to the fact won above skeptics, in aspect by his capability to foster agreement amongst divergent groups and by deftly taking above the FAA's Upcoming Generation Air Transportation Process.

The multibillion-dollar high-tech plan, dubbed NextGen, can be a shift with the U.S. Nationwide Airspace Process from working with radar-based methods for ground-based air website traffic management to satellite-based ones, or GPS.

Sarah McLeod, executive director of Aeronautical Fix Station Association, a trade group that represents aviation upkeep and manufacturing corporations, stated Huerta's technological savvy impressed her.

"When you meet him -- I spent my 45 minutes with him -- his capability to absorb facts was quite extraordinary. ... I imagined for currently being an outsider to aviation, this man was truly sharp. There was not any blunder why he was appointed."

That sharpness will now be named on, because the FAA requires on the complicated overview whose end result could have far-reaching implications for companies' investments in cutting-edge aerospace engineering.

"We're bringing technical authorities with each other and what we choose to build is information," Huerta explained on the press conference. "Based on what we study we are going to consider what ever proper action is vital."

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