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Rise in interest rates affects Wells Fargo & Co (NYSE:WFC) – JPM

Boston, MA 07/15/2013 (wallstreetpr) – Wells Fargo & Co (NYSE:WFC), one of the largest banks in the US, lost $3.35 billion in equity market due to the rise in interest rates. This equity figure also includes the loss recorded in the unrealized assets of the company which fell from $11.2 billion (recorded at the end of March) to $5.1 billion.

Wells Fargo & Co (NYSE:WFC) on July 12th announced its second quarter results. The largest US home lender announced a profit of 19 percent, as the bank has cut down on its expenses. Even though the second quarter proved profitable to the bank, the rise in increase interest rates has affected the bank’s equity investments. In addition to this, this rise will certainly affect the borrowing capacity of consumers. In short, interest rates are to affect mortgage loans of the bank. It is anticipated that consumer demand for home loans is likely to decrease due to the increase in interest rates.

Wells Fargo received $146 billion of home loan applications in the second quarter. However, the growth has already slowed down as the bank received $208 billion in the same period last year.

As per the Chief Financial Officer, Timothy Sloan, the bank is still planning to reduce its expenses even more in the future. But with the recent rise in interest rates it can get difficult for the bank to follow its plan of reducing expenses.  A crucial expense deducted by Wells Fargo is that of reserves for bad loans.  Other big banks such as JPMorgan have also increased their profits by reducing loan-loss reserves by $1.5 billion.

In addition to Wells Fargo, another US bank, JPMorgan Chase & Co. (NYSE:JPM), has also recorded a loss of 3.1 billion. The most profitable banks of the US shared a combined loss of $6.5 billion in the equity market, whereas JPMorgan Chase & Co. (NYSE:JPM) lost $3.1 billion.

As per the CFO, Timothy Sloan, the rise in interest rates does not lower the income of the securities bought; since the latter remains the same, only the value differs.

Published by Van Bettauer

Van Bettauer is a financial aficionado from Vancouver, British Columbia. He currently studies at UBC, pursuing a Bachelors of Science degree. Van has been freelance writing for many years, specializing in copywriting, report writing and article writing. The combination of his scientific studies and writing experience brings a new and fresh perspective to the financial world. Visit Bettauer's Google+ page at the following address:

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