Wells Fargo the second-largest U. S took a $490 million charge in the third quarter related to the write down of its mortgage assets while nearly doubling loan loss provisions.
“The housing market inevitably goes through cycles and we are in the down phase of that cycle,” Chief Financial Officer Howard Atkins said. “We are doing remarkably well in a difficult environment.”
The bank reported overall loan losses of $892 million in the third quarter a 46 percent increase from the $613 million a year ago attributing a good chunk of it to the increase in losses.
The bank said it had $153 million in losses on home equity loans in the third quarter up sharply from the $27 million in losses the same time last year.
Wells Fargo also warned that losses on home equity loans are likely to move higher in the current quarter and remain at “elevated levels” next year.
The lender ended September with roughly $83 billion in home equity loans on its books and another $67 billion in first mortgages.
Home fell by $9 billion to $68 billion the loan pipeline shrunk by $10 billion to $45 billion and new loan applications were flat.
Wells said $1.26 billion in loans were at least 90 days late up 16 percent or $177 million from levels at the end of June.
All in all. Wells seemed to deal with the mortgage mess much better than many of its competitors (hence the gold star) mainly because it reduced its exposure long before its rivals.
The bank and lender has also been relatively conservative compared to many other lenders pulling out of high-risk areas long before the others.
“It’s not that Wells Fargo isn’t affected by the mortgage industry problems but they are so well-capitalized and they seem to be managing their way through this market mess,” said Keith Gumbinger vice president of HSH Associates a mortgage research firm in Pompton Plains. New Jersey.
Despite what Wells Fargo called a “challenging quarter” the bank reported a 10 percent rise in revenue to $9.85 billion while income climbed 4 percent to $2.28 billion.
Interestingly the third quarter marks the first time that Wells Fargo’s quarterly profit has risen by less than 5 percent since an $87 million loss during the spring of 2001.
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