Wells Fargo said Friday that second-quarter profit declined 48% from a 12 months earlier because the bank put aside funds for bad loans and was stung by declines in its equity holdings.
Here’s what the corporate reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: 82 cents adjusted vs 80 cents expected
- Revenue: $17.03 billion vs $17.53 billion expected
Profit of $3.12 billion, or 74 cents per share, fell sharply compared with $6.04 billion, or $1.38, a 12 months earlier, the bank said in a statement.
Excluding the impairment, the bank would have earned 82 cents per share within the quarter, edging out the 80 cents per share estimate from analysts surveyed by Refinitiv.
Shares of the corporate jumped 6.6%, a pointy rebound from declines in premarket trading.
“While our net income declined within the second quarter, our underlying results reflected our improving earnings capability with expenses declining and rising rates of interest driving strong net interest income growth,” CEO Charlie Scharf said in the discharge.
Analysts and investors have been closely poring over bank results for any signs of stress on the U.S. economy. While borrowers of all sorts have continued to repay their loans, the potential of a looming recession triggered by surging rates of interest and broad declines in asset values has begun to seem in results.
Qilai Shen | Bloomberg | Getty Images
Wells Fargo said “market conditions” forced it to post a $576 million second-quarter impairment on equity securities tied to its enterprise capital business. The bank also had a $580 million provision for credit losses within the quarter, which is a pointy reversal from a 12 months earlier, when the bank benefited from the discharge of reserves as borrowers repaid their debts.
Scharf noted in his statement that he expected “credit losses to extend from these incredibly low levels.”
Notably, the bank’s revenue fell 16% to $17.03 billion within the quarter, roughly half a billion dollars below analysts’ expectation, as fees from mortgage banking plummeted to $287 million from $1.3 billion a 12 months earlier. The corporate also said that it had divested operations that earned $589 million within the year-earlier period.
Higher rates of interest did provide a tail wind within the quarter, nevertheless. Net interest income climbed 16% from a 12 months earlier; Scharf said that the profit from higher rates would “greater than offset” further pressure on fees of their mortgage unit and other operations.
Last month, Wells Fargo executives disclosed that second-quarter mortgage revenue was headed for a 50% decline from the primary quarter as sharply higher rates of interest curtailed purchase and refinance activity. On Friday, the bank’s management said that an additional decline in mortgage revenue in the course of the third quarter was possible.
It’s one in every of the impacts of the Federal Reserve’s campaign to fight inflation by raising rates by 125 basis points within the second quarter alone. Wells Fargo, with its give attention to retail and industrial banking, was widely expected to be one in every of the massive beneficiaries of upper rates.
But concerns that the Fed would inadvertently tip the economy right into a recession have grown this 12 months, weighing heavily on the shares of banks. That is because more borrowers would default on loans, from bank cards to mortgages to industrial lines of credit, in a recession.
Led by Scharf since October 2019, the bank continues to be operating under a series of consent orders tied to its 2016 fake accounts scandal, including one from the Fed that caps its asset growth. Analysts will probably be keen to listen to from Scharf about any progress being made to resolve those orders.
Shares of Wells Fargo have dropped 19% this 12 months, roughly consistent with the decline of the KBW Bank Index.
Citigroup also disclosed results on Friday; the bank topped estimates for profit and revenue on rising rates of interest and powerful trading results.
On Thursday, greater rival JPMorgan Chase posted results that missed expectations because it built reserves for bad loans, and Morgan Stanley upset on a worse-than-expected slowdown in investment banking fees.
Bank of America and Goldman Sachs are scheduled to report results Monday.
This story is developing. Please check back for updates.