Slow Fourth Quarter for Wells Fargo Brokerage Business

Slow Fourth Quarter for Wells Fargo Brokerage Business

Wells Fargo’s Wealth, Brokerage and Retirement division ended the year on a slow note, with profits down by 7 percent, or $36 million, from the $550 million earned the previous quarter.

Overall, the bank’s fourth quarter financial performance met analysts’ expectations of $1.02 earnings per share, with Wells Fargo’s loan growth a bright spot. The California-based bank reported a net income of $5.71 billion, up from the $5.6 billion reported a year ago. Revenues grew by 4 percent from the year-ago quarter to $21.4 billion, in line with analysts polled by Seeking Alpha expected revenue of $21.4 billion.

For the year of 2014, Wells Fargo reported a net income of $23.1 billion, up 5 percent from 2013 and revenues of $84.3 billion, up about 1 percent from last year. Chief Financial Officer John Shrewsberry noted the bank increased deposits and grew commercial and consumer loans for the fourth quarter by 4.9 percent from a year ago to $862.6 billion.

Chairman and CEO John Stumpf called 2014 an “outstanding year,” saying the bank reported record earnings and continued to show strength in growing customers, loans, deposits and capital. Further, Stumpf was optimistic going forward, saying that 97 percent of Wells Fargo’s revenue comes from U.S. customers and there’s signs that the economy continues to build momentum.

But despite meeting analysts’ expectations, shares fell 1.5 percent in pre-market trading in the face of reported lower lending profitability—the net interest margin fell to 3.04 percent from 3.3 percent a year prior—and 4.7 percent increases in expenses from a year earlier to $12.7 billion.

In the wealth, brokerage and retirement unit, advisory fees, commissions and other wealth management fees made up 23 percent, or about $2.4 billion, of the firm’s overall noninterest income during the fourth quarter, in line with the previous quarter.

The brokerage business saw expenses increase by $156 million, or 6 percent, from a year ago, driven by higher FDIC expenses and increased broker commissions, the firm said. But the company noted these expenses were partially offset by lower deferred compensation plan expenses.

The unit reported revenue of $3.6 billion in the fourth quarter, up 8 percent from a year ago and up by about $94 million, or 3 percent, from the prior quarter.  Client assets within the retail brokerage business grew 4 percent from a year ago to about $1.4 trillion, but flat sequentially.

Wells Fargo Advisors, its St. Louis-based employee retail brokerage unit, reported managed account assets of $423 billion in the fourth quarter, up 13 percent year-over-year and 3 percent from the third quarter. The increase was largely driven by net flows and market performance, the company says.

The firm recruited a net of 24 new advisors during the quarter, bringing total headcount to 15,187, up from the 15,163 advisors reported employed by the brokerage last quarter.

The cross-sell ratio for the wealth, brokerage and retirement business came in at 10.49 products per household during the quarter, up from 10.41 a year ago, according to Wells Fargo. Additionally, the unit had strong loan growth, with average balances up 10 percent from the prior year on growth in non-conforming mortgages.

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