Shares of Wells Fargo & Co (NYSE: WFC) down 2.52% to $47.72 after the bank announced the second quarter financial results on Friday morning. Wells Fargo reported its profit down as low interest rates continued to sap profitability at the third largest U.S. bank by assets.
Wells Fargo is one of the biggest U.S. mortgage lender, and stated its net income applicable to common shareholders decreased to $5.2 billion in the second quarter compared with $5.4 billion in the same quarter last year. Earnings per share down to $1.01 from $1.03 which still beats the average analyst expectation. Revenue increased 4% to $22.2 billion.
Lower-for-longer interest rates have put a damper on profits for Wells Fargo which don’t earn as much money by lending out their vast deposits. In addition, the U.K. vote to leave the European Union has pushed U.S. bank stocks down, even Wells Fargo has a much smaller presence in the U.K. and investment banking than its counterparts. A slump in oil prices has also hurt Wells Fargo, which is one of the largest energy lenders.
But low rates have been a boon for certain aspects of home lending. Wells Fargo extended $63 billion in home loans between the end of March and the end of June, compared with $62 billion in the second quarter of 2015 and $44 billion in the first quarter of 2016. Yet Wells Fargo’s mortgage business, the largest in the U.S. by volume, earned $1.41 billion in fees in the second quarter, slip 17% from the $1.71 billion it earned in same quarter last year.
When rates get too low, the gap between what it costs banks to obtain funding and what they can earn from investing or lending tends to narrow. Wells’ net interest margin which measures interest income as a portion of assets declined on both an annual and quarterly basis.