Wells Fargo Profit Jumps, but Home loan Company 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 organization.

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 home 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 mortgage 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 mortgage 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.

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Barak Help Is actually Treasury Select

President Barack Obama ideas to nominate Jacob Lew to become the 76th U.S. Treasury secretary, placing the White House's chief price range specialist within a prime financial submit since it enters a grueling year of fiscal battles with Congress.

Mr. Lew would break the mold of current Treasury chiefs given that he's much better regarded for staying a loyal lieutenant and price range wonk than a financial-market professional with broad small business contacts.

Mr. Lew's assortment to do well Timothy Geithner, which may be announced as early as Thursday, signals that Mr. Obama is ready to aggressively pursue his economic-policy aims in his 2nd phrase. Lots of Republicans oppose the White House's insistence on raising extra tax income as element of any potential deficit-reduction deal, but Mr. Lew's vocal assistance in the technique suggests the administration, even though ready to negotiate, will not give ground with no battle.

The option also exhibits the president's tendency is usually to draw from a relatively tight group of advisers to perform crucial roles. Mr. Lew served Mr. Obama through the starting of his administration, 1st within the State Division and later on from the White Home and is now aspect of his inner circle. Just this week, Mr. Obama pulled a further White Household staffer, John Brennan, to develop into director on the Central Intelligence Agency, and appears most likely to change Mr. Lew as White Property chief of employees with an additional insider.

The tendency has created an Obama group that is not marked by inner feuding and divisions as considerably as some previous administrations are already, but additionally has produced criticism the group across the president is also insular and closed to outdoors tips.

Mr. Lew's nomination would come as element of the broad Cabinet-level reshuffle. Moreover for the CIA choose, he has picked nominees to lead the Defense Division and also the State Division. Labor Secretary Hilda Solis explained Wednesday she planned to leave, as well as the White Property nonetheless must nominate long lasting leaders for that Workplace of Management and Spending budget and also the Commerce Division.

Mr. Obama's intention to nominate Mr. Lew was reported Wednesday by Bloomberg News and confirmed by a Democratic official. Mr. Lew, who declined to comment, is much less well-known on Wall Street than quite a few of his predecessors regardless of currently being a brand new York native and obtaining worked at Citigroup C -0.99% .

Mr. Lew, 57 many years old, is actually a veteran of quite a few Washington price range battles, stretching back to his function like a senior congressional aide from the 1980s. He would probably draw on that practical experience in the course of the looming fights in excess of the financial debt ceiling, government investing amounts along with a achievable overhaul on the tax code.

One of the most pressing could be the government's have to have to increase its $16.394 trillion borrowing restrict. The Treasury Division presently is employing emergency measures to avoid the nation from defaulting, but individuals measures are anticipated to run out amongst mid-February and early March.

Mr. Lew, that is often known as Jack, has worked for or on behalf of a lot of the Democratic Party's icons of liberalism to the superior aspect of 5 decades. As being a 12-year-old, he canvassed for Democratic presidential contender Eugene McCarthy and reduce his teeth doing work for Bella Abzug (D., N.Y.), Joseph Moakley (D., Mass.) and Household Speaker Thomas "Tip" O'Neill (D., Mass.).

In recent times, he has served as chief operating officer at New York University and two divisions of Citigroup Inc., ahead of turning into deputy secretary of state in 2009. He has become White Household chief of workers considering the fact that 2012, following a publish as head in the White Household Workplace of Management and Spending budget.

Lots of Republicans have viewed Mr. Lew as capable but overly rigid immediately after contending with him for the duration of spending budget battles stretching back on the 1980s. He clashed with GOP aides all through the 2011 battle more than the financial debt ceiling, with some feeling he was not prepared to make deep concessions to reduce a deal.

In 2011, as political leaders have been creating the investing reductions that will commence this year if a more substantial deficit-reduction deal was not reached, some Republicans wished to reduce Medicaid, the health-care plan to the poor. Mr. Lew bluntly interrupted to say Medicaid was off the table, prompting a GOP aide to hang up the cell phone, as outlined by someone acquainted using the exchange. Quite a few months earlier, through a debate above government funding, the usually-even-tempered Mr. Lew stormed out in excess of a dispute with Republicans about what numbers the two sides need to use as their "base line" for negotiations.

"He's a challenging man to negotiate with,'' explained former Sen. Judd Gregg, a fresh Hampshire Republican who handled Mr. Lew extensively on price range issues though in Congress. "He has his positions and he does not give considerably ground, even though he's truly a good particular person.''

Senior GOP aides explained they anticipated Mr. Lew would win confirmation barring sudden developments, but that Republicans could prolong the confirmation approach to emphasis on inquiries about Obama fiscal policies.

1 probable place of inquiry will be his time at Citigroup, from 2006 until finally 2009. With its broad array of divisions and aggressive bets on exotic monetary solutions, Citi nearly became the biggest casualty in the money crisis, requiring numerous government bailouts.

Mr. Lew served as chief operating officer at two divisions in the corporation, Citi Worldwide Wealth Management and Citi Substitute Investments. The latter division was finally split into pieces when it sustained heavy losses right after Mr. Lew's exit. Individuals who worked with him mentioned Mr. Lew played a largely operational function and was not intimately involved with the choices about how the divisions invested and managed cash. He was brought towards the company by former Clinton Treasury Secretary Bob Rubin, who in the time had a senior publish there.

Mr. Lew's supporters have described him as an unparalleled fiscal specialist and note that he was portion from the spending budget agreements all through the Clinton administration that led to a surplus just after negotiations using the GOP. Lots of cited his considerable do the job on budgets and taxes, specifically provided the prominence of individuals difficulties in Washington now.

"He has straight-A experience?aafter all he's been OMB director twice, he's been White Residence chief of personnel," mentioned Roger Altman, founder and executive chairman of Evercore Partners who worked with Mr. Lew from the Clinton administration. "I'm not positive the way you might be superior ready provided what the challenges are above the foreseeable potential."

Mr. Geithner joined the Obama administration in January 2009. He aided style and design the administration's strategy to your 2008 fiscal crisis, worked to win passage of your Dodd-Frank monetary overhaul law, and was a important player during the battles in excess of the financial debt ceiling in 2011 along with the fiscal cliff in 2012. He spent a considerable period of time focused on foreign challenges, together with Iran sanctions, the European fiscal crisis and worries in excess of the valuation of China's currency.

If confirmed, Mr. Lew's move could set off a reshuffle of leading White Home posts. The primary contenders to change him as chief of personnel are Ron Klain, former chief of workers to Vice President Joe Biden, and Denis McDonough, a deputy nationwide protection adviser. Treasury Deputy Secretary Neal Wolin also is anticipated to leave quickly, however the White Residence has requested that he enable with all the transition.

?aPatrick O'Connor, David Enrich, Sarah Portlock, Carol E. Lee and Suzanne Kapner contributed to this short article.

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