Wells Fargo (WFC) Q2 2022 earnings

Wells Fargo said on Friday that second-quarter profit fell 48% from a year earlier as the bank set aside funds for bad loans and was hit by a drop in equity.

Here’s what the company reported versus what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: adjusted 82 cents 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 from $6.04 billion, or $1.38, a year earlier, the bank said in a statement. statement. The company’s shares fell nearly 1% in pre-market trading.

Excluding the impairment, the bank would have earned 82 cents per share for the quarter, well above the 80 cents per share estimate from analysts surveyed by Refinitiv.

“While our net income declined in the second quarter, our underlying results reflect the possibility that our earnings are improving with falling costs and rising interest rates leading to strong net interest income growth.” strong,” CEO Charlie Scharf said in a statement.

Analysts and investors have been closely watching bank results for any signs of stress on the US economy. While borrowers of all types continue to repay their loans, the possibility of a potential recession due to soaring interest rates and a widespread decline in property values ​​has begun to emerge. presently.

Charles Scharf

Qilai Shen | Bloomberg | beautiful pictures

Wells Fargo said “market conditions” forced the company to record a $576 million write-down in the second quarter in equity securities tied to its venture capital business. The bank also made a provision of $580 million for credit exposures during the quarter, a sharp reversal from a year earlier, when the bank benefited from the release of reserves. when borrowers repay.

Scharf noted in his statement that he expected “credit losses to grow from these extremely low levels.”

Notably, the bank’s revenue fell 16% to $17.03 billion in the quarter, about half a billion dollars lower than analysts’ expectations, as fees from mortgage banks plummeted to 287 million from $1.3 billion a year earlier. The company also said it divested operations that earned $589 million in the early-year period last year.

However, higher interest rates have provided a slight headwind this quarter. Net interest income increased 16% from a year earlier; Scharf says the benefit from higher rates will “offset” additional pressure on fees in its mortgage unit and other operations.

Last month, Wells Fargo executives revealed that mortgage revenue for the second quarter was on track to target Sale 50% from the first quarter when strongly higher interest rates curbed buying and refinancing activity.

That’s one of the effects of the Federal Reserve’s anti-inflation campaign by raising interest rates by 125 basis points in the second quarter alone. Wells Fargo, with a focus on retail and commercial banking, is widely seen as one of the big beneficiaries of higher rates.

But concerns that the Fed will inadvertently push the economy into recession have increased this year, weighing on bank stocks. That’s because many borrowers will default on loans, from credit cards to mortgages to commercial lines of credit, during a recession.

Led by Scharf since October 2019, the bank is still operating under a series of approval orders related to the 2016 fake account scandal, including an order from the Fed to limit financial growth. their property. Analysts will want to hear from Scharf about any progress being made to settle those orders.

Wells Fargo’s stock is down 19% this year, akin to a decline in Bank Index KBW.

Citigroup also revealed the results on Friday; Bank top estimate profit and revenue as interest rates rise and business results are strong.

On Thursday, the bigger opponent JPMorgan Chase I posted the results miss expectations because it has built up reserves for bad loans, and Morgan Stanley disappointed about something worse than expected slow down in investment banking fees.

Bank of America and Goldman Sachs scheduled to report results on Monday.

This story is evolving. Please check back for updates.

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