Wells Fargo & Co (NYSE: WFC) Stock Falls Ahead of Earnings

Well Fargo & Co. (NYSE: WFC) stock fell 0.83% Monday, the last trading session before Q4 earnings are released Tuesday before the bell.

We get a fresh read on health of the housing and mortgage markets when Wells Fargo Q4 earnings come out.

Analysts are expecting the San Francisco-based lender to book its 16th consecutive quarter of profit growth. Earnings are projected to have risen 8% year over year.

But, the numbers ought to come with an asterisk.

You see, while the financial bellwether is expected to handily beat earnings estimates, it's likely to have done so more by cost-cutting than earning more money.

It's expected that mortgage refinancing activity fell at the bank, hurting Q4 earnings. Mortgage rates have risen since the first mumblings of a Fed taper.

That means WFC would have to trim expenses and release reserves in order to look more profitable.

Estimates are for net income of $5.29 billion, or $0.99 a share, compared with $4.66 billion, or $0.91 a share, in a same period a year ago. Excluding one-time items, earnings per share is forecast to come in a $0.98 a share, up from $0.92 a share a year ago.

But forecasts have revenue falling 11% year over year to $20.68 billion, down from $23.16 billion a year earlier.

For the full fiscal year, analysts are looking for earnings of $3.87 per share, with revenue at $84.17 billion.

Wells Fargo has posted a net income increase in the last three consecutive quarters. In Q3, profits rose 10% year over year. Net income rose 19% in Q2 and 22% in Q1.

However, revenue has slipped for three straight quarters. Revenue declined 7% to $21.51 billion in Q3. It dipped 1% in Q2 and slumped 3% in Q1, all on a year-over-year basis.

WFC Earnings: Getting Creative

Banks are getting creative in tactics to attract customers and spur growth, as borrowing demand is down and regulations are up.

Wells Fargo, boasting a more polished reputation than many of its peers, is no exception...

The largest U.S. home lender, handling approximately 20% of U.S. mortgages last year, is presently pushing a new mortgage program. It's aimed at clients who want more non-traditional loans, such as those that have interest-only payments. Some 400 underwriters have been assigned to the new initiative.

And it's paying off - for Wells Fargo anyway. In the first six months of 2013, the company added $14.5 billion in nonconforming mortgages, upping the bank's total to $72.4 billion.

The shift marks an abrupt change for Wells Fargo. For decades, the bank has made loans with the goal of simply selling mortgages. Now, Wells Fargo is originating for its personal portfolio that will hold the loans for their lifetime.

The objective is to generate mortgage loans the bank can hold in-house and under its sole supervision. Yet as many as 40% of those new loans could fall outside of government guidelines that just went into effect.

According to Brad Blackwell, head of portfolio lending for Wells Fargo, "the group will review loans including those with terms that prevent them from qualifying for protections by the Consumer Financial Protection Bureau, or CFPB, under new rules," Bloomberg reported.

Sounds risky for all involved - including shareholders.

WFC stock closed at $45.56 Monday.

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