Joining the Q3 roster of banks that beat yet which all surprised investors with a cautionary red flag (for the other banks this involved a drop in FICC trading revenue and a sharp increase in loan loss reserves), moments ago Wells Fargo also reported better than expected Q3 EPS of $1.04 (exp. $1.03) which however was the result of a material 20 cent litigation accrual addback to a GAAP EPS of $0.84, indicating that management is expecting significant lawsuits in the coming months. Worse, the bank missed badly on the top line (revenue of $21.9bn vs exp. $22.4bn), but the reason why the stock has tanked by over 3% pre market is the unexpected miss in the company’s Net Interest Margin, which slumped from 2.90% to 2.87%, well below the 2.92% expected, and resulting in a lower sequential Net Interest Income number of $12.476 billion.
Not helping matters is that the company’s mortgage loan pipeline once again took a sharp leg lower. While total originations in Q3 rose to $59 billion sequentially (and down 16% Y/Y), what was more disappointing was the 27% Y/Y drop in Mortgage Applications, which declined to $73 billion in Q3, while the Mortgage Application pipeline, the most informative advance look at the state of the housing market, tumbled 42% to just $29 billion, which was just shy of lowest prints since the financial crisis.
However, while the bank’s ongoing mortgage pains – traditionally the bread and butter for the largest US mortgage lender – was disappointing, if not exactly surprising for a bank that has seen scandal after scandal in recent months, there was a flashing red light elsewhere: following the sharp plunge last quarter, Wells reported that the decline in auto loan originations continued, tumbling 47% Y/Y to only $4.3 billion, the lowest print since …read more