Wells Fargo & Co. led bank stocks lower Monday after the $1.3 trillion-asset bank reported weaker net interest margins and a 6% decline in third-quarter revenue.
Chief Financial Officer Tim Sloan attributed Wells' lower net interest margin — the difference between what it pays to borrow and what it earns on loans and securities — to Wells' "outsized deposit growth" in the quarter. Wells' shares had fallen 7.6%, to $24.65 apiece, in early afternoon trading and led a broader decline in bank stocks.
"We had the opportunity to bring in another $40 billion in deposits, which is a great thing, but that did have an outsized impact on net interest margin," Sloan told American Banker in an interview Monday.
Wells' core deposits rose 14% from the second quarter, and 8% from a year earlier, to $836.8 billion.
"There's no question that it was a noisy quarter from a revenue standpoint," Sloan said.
Wells' profit of $4.1 billion was 3% higher than in the prior quarter, and 21% higher than a year earlier. Revenue dropped 6% to $19.6 billion from quarter to quarter, and 5% from a year earlier. Noninterest expenses fell 5% from the prior quarter, and 1% lower from a year earlier, to $11.7 billion.
Analysts attributed the decline in net interest margin, to 3.8% in the third quarter from 4% in the second quarter, to lower yields on residential mortgages and construction and industrial loans.
Chief Executive John Stumpf played up Wells' record earnings, strong loan growth and higher mortgage banking revenue.
"There was a lot of volatility in the third quarter and a lot of concern about Europe," Stumpf told analysts on a conference called, adding that "customer sentiment is good, [and] the economy continues to bump along a little bit."
He also weighed in on the Occupy Wall Street protestors, saying he understands "the angst and the anger."
"This downturn has been too long, unemployment is too high and people are hurting," Stumpf said. "We get that." But, he added, banks cannot sway the disgruntled "through an advertising solution."
Stumpf also weighed in on the debit cards controversy that has dogged Bank of America Corp. since it announced in September a $5 monthly fee on debit card use. Wells is testing a $3 monthly fee on debit cards in a few markets.
"Our customers will help us understand how they want to pay for that value and that choice, and we'll learn from those tests," he said.
The Durbin rule's limits on interchange fees on debit cards could cost the company $250 million per quarter, Wells officials reiterated.
Analysts questioned Stumpf — who has pushed drastic cuts in spending — whether Wells could increase revenue and lower expenses, since some expense reduction is temporary or varies from quarter to quarter.
"Which will win, revenue or expenses?" asked Mike Mayo, a banking analyst at Calyon Securities.
"Revenues are going to beat expenses," replied Stumpf. "That's how you run a successful company."
