The Wells Fargo wagon delivered good news to Wall Street when the San Francisco-based bank announced a record first-quarter profit of approximately $3 billion, or 55 percent per common share. Contrast these numbers with the fourth quarter of 2008, when Wells Fargo reported a $2.6 billion loss.
The news sent the Dow Jones Industrial Average soaring 3.1 percent to finish the day at 8,083.38, the highest closing since February 9.
Wells credited the outstanding results to healthy lending margins driven by low interest rates and the resulting boom in mortgage lending activity. “Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group,” said John Stumpf, Wells Fargo’s CEO. Applications for mortgages surged during the first quarter; Wells reported $83 billion in applications for new and refinance home loans during March alone.
Wells is the nation’s largest mortgage servicer and a leading home loan originator, so it benefited from the refinancing boom driven by extremely low short-term interest rates and the government’s purchases of mortgage bonds.
Although this is evidence that the Obama administration’s efforts to jump-start the economy by freeing up credit are starting to work, it is only the hint of a beginning for banks with significant mortgage portfolios. Wells and competitors such as Bank of America, Citigroup and JPMorgan Chase remain dangerously exposed to falling asset prices, especially for commercial and residential real estate.
So, what did it? It wasn’t a bold move by Treasury Secretary Timothy Geithner. It wasn’t the American Recovery and Reinvestment Act. It wasn’t hope. It wasn’t a government plan.