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fargo wells It said on Friday that second-quarter profit was down 48% from a year earlier as the bank set aside funds for bad loans and was hit by declining equity holdings.
Here’s what the company reported compared to what Wall Street expected, according to a Refinitiv survey of analysts:
- 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 a share, fell sharply from $6.04 billion, or $1.38, a year earlier, the bank said in a report. statement. Shares of the company fell nearly 1% in premarket trading.
Excluding the impairment, the bank would have earned 82 cents a share in the quarter, beating the 80 cents a share estimate of analysts surveyed by Refinitiv.
“While our net income declined in the second quarter, our underlying results reflected our improved earnings capacity with lower expenses and higher interest rates driving strong growth in net interest income,” said the CEO Charlie Scharf in the statement.
Analysts and investors have been closely watching banking results for signs of stress in the US economy. While borrowers of all stripes have continued to pay off their loans, the possibility of an impending recession triggered by rising interest rates and broad declines in asset values has begun to show in the results.
Wells Fargo said “market conditions” forced it to post a $576 million impairment in the second quarter in equity securities linked to its venture capital business. The bank also had a $580 million provision for loan losses in the quarter, marking a sharp turn from a year earlier, when the bank benefited from the release of reserves as borrowers paid down their debts.
Scharf said in his statement that he expected “credit losses to rise from these incredibly low levels.”
Notably, the bank’s revenue fell 16% to $17.03 billion in the quarter, about $500 million below analyst expectations, as mortgage banking fees plunged to $287 million from $1.3 billion a year earlier. The company also said it had divested operations that earned $589 million in the prior year period.
However, higher interest rates provided a tailwind in the quarter. Net interest income increased 16% from the prior year; Scharf said the benefit of higher rates would “more than offset” more pressure on rates at his mortgage unit and other operations.
Last month, Wells Fargo executives revealed that second-quarter mortgage income was heading for a 50% decrease since the first quarter, as sharply higher interest rates curtailed purchase and refinance activity.
It is one of the shocks of the Federal Reserve’s campaign to fight inflation by raising rates by 125 basis points in the second quarter alone. Wells Fargo, with its focus on retail and commercial banking, was widely expected to be one of the big beneficiaries of higher rates.
But concerns that the Fed would inadvertently push the economy into a recession have increased this year, weighing heavily on bank stocks. That’s because more borrowers would default on loans, from credit cards to mortgages to business lines of credit, in a recession.
Run by Scharf since October 2019, the bank still operates under a series of consent orders linked to its 2016 fake account scandal, including one from the Federal Reserve limiting its asset growth. Analysts will be eager to hear from Scharf about any progress made in resolving those orders.
Wells Fargo shares have fallen 19% this year, roughly in line with the decline in the KBW Banking Index.
Citigroup also disclosed the results on Friday; The bank beat earnings and revenue estimates on higher interest rates and strong business results.
On Thursday, bigger rival JPMorgan Chase posted results that missed expectations as it built up provisions for bad loans, and Morgan Stanley disappointed on a worse-than-expected slowdown in investment banking fees.
Bank of America and Goldman Sachs are scheduled to report the results on Monday.
This story is developing. Please check for updates.