April 12, 2013 1:48 pm

Wells Fargo relies on cost cutting for boost

Cost cutting helped Wells Fargo beat expectations in the first quarter with a 22 per cent rise in profit even as revenue declined.

Net income at the biggest US bank by market capitalisation rose to a record $5.2bn, or 92 cents a share, from $4.25bn, or 75 cents a share, the same time a year ago. Analysts polled by Bloomberg had forecast earnings of 88 cents a share.

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The record profit came despite a revenue decline of 2 per cent from $21.6bn in 2012 to $21.3bn. Mortgage banking income slipped 3 per cent, net gains from trading were down 11 per cent while net gains from equity investments through its private equity arm plunged 69 per cent.

John Stumpf, chief executive, said the bank had trimmed expenses over the quarter, and that “loans and deposits demonstrated continued growth in a challenging economic environment.”

The bank, which is the largest US home lender, has benefited from the recovering housing market and a wave of mortgage refinancings. However, like its peers, margins have been squeezed by the Federal Reserve’s low interest rate policy.

Its net interest margin – the difference between what the bank pays out in interest on deposits and takes in on its investments – slipped from 3.56 per cent in the fourth quarter to 3.48 per cent.

Wells Fargo said it would increase its dividend from 25 cents in the first three months of the year to 30 cents a share in the second quarter.

Shares in the bank fell about 1.3 per cent to $37 on the opening of trading in New York.

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