Pedestrians walk past a Wells Fargo bank branch in New York, U.S., Thursday, Jan. 13, 2022.
Victor J. Blue | Bloomberg | Getty Images
Wells Fargo said Friday it was still seeing historically low loan delinquencies, but a decision to build up reserves as the economy slows slashed third-quarter earnings.
Wells Fargo shares rose more than 1% in premarket trading as revenue beat expectations.
Here’s how the bank did it:
- Adjusted earnings: $1.30 per share, beating an estimate of $1.09 per share, according to Refinitiv
- Revenue: $19.51 billion, beating an estimate of $18.78 billion, according to Refinitiv
The bank has taken a provision for credit losses of $784 million after reducing it by $1.4 billion a year ago. The provision included a $385 million increase in the provision for credit losses reflecting loan growth and a less favorable economic environment, the bank said.
Net income of $3.53 billion fell more than 30% from $5.12 billion in the same quarter a year ago. Earnings of 85 cents per share are also below $1.17 per share in the third quarter of 2021.
Wells’ performance was significantly impacted by operating losses of $2 billion, or 45 cents, related to litigation, customer remedies and regulatory matters primarily related to a variety of historical matters, according to general manager Charlie Scharf in a statement.
Wells operates under a series of consent orders related to his 2016 bogus account scandal, including one from the Fed that caps the growth of his assets.
As the most dependent on mortgages from the six largest U.S. banks, Wells Fargo came under pressure as selling and refinancing activity fell sharply as the average 30-year mortgage rate peaked in 20 years close to 7%.
This is one of the impacts of the Federal Reserve’s campaign to fight inflation by aggressively raising rates. Wells Fargo, which focuses on retail and commercial banking, was expected to be a big beneficiary of the rate hike.
Net interest income rose 36%, mainly due to the impact of higher interest rates and higher loan balances, the bank said.
“Wells Fargo is well positioned as we will continue to benefit from higher rates and ongoing disciplined expense management,” Scharf said. “Retail and business customers remain in strong financial shape, and we continue to see historically low delinquencies and high payment rates in our portfolios.”
Wells’ better-than-expected revenue was supported by a 28% jump in banking operations on stronger cash management results. Commercial real estate revenue rose 29%, reflecting higher loan balances and the impact of rising interest rates, the bank said.
Fears that the Fed could inadvertently tip the economy into recession have increased this year, weighing heavily on bank stocks. Indeed, more borrowers would default on their loans, from credit cards to mortgages to commercial lines of credit, in a recession.
Wells shares are down about 12% this year, performing better than the S&P 500.
Read all Press release.
– CNBC’s Hugh Son contributed reporting.