Tuesday, January 15, 2013

Wells Fargo faces tougher road ahead

Wells Fargo has turned its mortgage business into an enormous profit machine. The San Francisco-based bank posted earnings of $5.1 billion in the fourth quarter, a 24 percent increase from the previous year., NY Times’ Dealbook told us. But its strong gains may not be sustainable, unless interest rates drop significantly or the housing market recovers substantially. Both are long shots.

In recent years, Wells Fargo has aggressively expanded its mortgage business, a strategy that has helped drive record profits. The company reported net income of $18.9 billion in 2012, up 19 percent from 2011. Revenue rose 6 percent in the same period.

But after 12 consecutive quarters of rising profits, Wells Fargo may find it difficult to keep up the pace.
The bank’s recent mortgage profits largely reflect the government’s efforts to stimulate the economy, rather than a robust recovery in the housing market….

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