Wells Fargo & Co (WFC.N), the biggest U.S. residential mortgage lender, reported a rise in quarterly profit for the first time in three quarters on Wednesday, helped by its purchase of commercial loans from General Electric Co (GE.N).
The San Francisco lender has been using its hefty balance sheet to diversify its business as it braces for a rise in interest rates to cut into demand for home loans.
It is unclear when the U.S. Federal Reserve will hike interest rates, but Fed Chair Janet Yellen recently said she supports raising rates this year.
Some analysts also believe the housing market is at or near a peak, while the U.S Federal Reserve has created further uncertainty by indicating it will soon raise interest rates.
Wells Fargo, whose shares were down 0.5 percent in early trading, agreed earlier this year to buy a portion of GE’s commercial real estate loans worth $9 billion.
That acquisition helped to drive up net interest income, a measure of the interest received from loans after paying for funding and accounting for potential loan losses, by 1.7 percent to $10.75 billion.
In its latest deal, the bank said on Tuesday it would buy a portfolio of commercial loans and leases worth more than $30 billion from GE for an undisclosed amount.
Nomura analysts said the deal could add 3-4 percent to earnings per share in 2016.
Given that Wells Fargo is buying assets in businesses where it already has a presence, the incremental costs from these acquisitions are quite manageable, Barclays analyst Jason Goldberg wrote in a note on Tuesday.
EARNINGS BEAT – JUST
Wells Fargo, the No. 4 U.S. bank by assets, said its net income applicable to common shareholders rose 0.65 percent to $5.44 billion, or $1.05 per share, in the three months ended Sept. 30 from $5.41 billion, or $1.02 per share, a year earlier.
Analysts on average had expected earnings of $1.04 per share, according to Thomson Reuters I/B/E/S.
“There appeared to be no major special items, and results seem to reflect clean operating earnings,” Oppenheimer & Co analyst Chris Kotowski wrote in a note.
Mortgage banking revenue fell 2.7 percent to $1.59 billion, accounting for about 15 percent of non-interest income.
Applications for U.S. home loans have fallen by about a quarter since mid-January, according to the Mortgage Bankers Association.
Wells Fargo made $55 billion of home loans in the quarter, up 15 percent from a year earlier but down 11 percent from the second quarter.
JPMorgan Chase & Co (JPM.N), the second-biggest U.S. mortgage provider, said on Tuesday its mortgage banking revenue declined 23 percent to $1.6 billion in the third quarter.
Total revenue rose about 2.6 percent to $21.88 billion.
Up to Tuesday’s close of $51.86, Wells Fargo’s shares had fallen 5.4 percent since the start of the year, in line with the 5.13 percent decline in the KBW index of bank stocks .BKX.