Wells Fargo Beats Earnings, Revenue Slips

Wells Fargo (NYSE: WFC) has been the most reliable of the six big banks in recent years. And the company again came in ahead of quarterly earnings forecasts this morning.

But weaknesses in other areas are causing the stock to drop.

Revenue declined 1.7% as the bank’s usually stalwart mortgage business slipped. Mortgage banking noninterest income was down 2.6% from a year earlier. Home lending originations declined 13% from the fourth quarter, while loan application income fell 8%. Total loans showed no improvement from the previous quarter.

Those numbers are driving WFC shares down 2% in early trading. Of course, part of that could be a pullback given that the stock was up 7% year-to-date entering the day. Only a spotless earnings report would likely have sparked the shares to rally higher.

Still, the slowdown in the bank’s mortgage business is a legitimate concern. Well Fargo has been the dominant player in the mortgage industry, where it commands close to a 30% share. That’s what the company hangs its hat on, and is a major reason it has remained profitable for 13 straight quarters.

The housing industry is supposed to be in full recovery mode, with housing starts on the rise and home prices accelerating faster than at any time since 2006. So a slippage in America’s largest mortgage lending bank is a red flag.

For now, that concern is overshadowing yet another very profitable quarter at Wells Fargo.

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