Wells Fargo shares rose 3% as banks beat expectations despite increasing loan loss reserves

Pedestrians pass a branch of Wells Fargo Bank in New York, USA, Thursday, January 13, 2022.

Victor J. Blue | Bloomberg | Bloomberg | Getty Images

wells fargo It said Friday it still sees historically low loan delinquencies, but it made the decision to build up reserves as the economy slowed, reducing third-quarter earnings.

Better-than-expected results sent Wells Fargo shares up more than 3%.

Here are the bank results compared to Refinitiv estimates:

  • Earnings per share: $1.30 adjusted vs. $1.09 expected
  • Revenue: $19.51 billion vs. $18.78 billion forecast

Net income for the quarter ended September 30 was $3.53 billion, or 0.85 cents per share, down more than 30% from $5.12 billion, or $1.17 per share, in the year-ago quarter. rice field.

Adjusted, Wells earned $1.30 per share, beating analyst estimates.

The company’s results were hit hard by an operating loss of $2 billion, or 45 cents per share, related to litigation, customer remediation and regulatory issues, the company said in a statement.

Wells operates under a series of consent orders related to the 2016 fake account scandal. This includes orders from his Fed restricting asset growth.

In the most recent period, banks set aside $784 million for credit losses after reducing provisions of $1.4 billion a year ago. The reserve included a $385 million increase in loan loss reserves, according to the bank, reflecting loan growth and a deteriorating economic environment.

“Wells Fargo is well positioned to continue to benefit from higher interest rates and continued disciplined expense management,” Chief Executive Officer Charlie Scharf said in a statement. “The financial condition of our customers, both consumers and businesses, continues to be strong, with historically low delinquencies and high payment rates across our portfolio.”

Wells Fargo, the most mortgage-dependent of the Big Six U.S. banks, experienced a surge in sales and refinancing activity as average interest rates on 30-year mortgages rose to nearly 7%, a 20-year high. Faced with pressure to go down.

Wells Fargo said its third-quarter mortgage revenue fell 52% as the pace of mortgage originations slowed. Mortgage originations fell 59% from the year-ago quarter to his $21.5 billion.

This is one of the effects of the Federal Reserve’s (Fed) campaign to fight inflation by aggressively raising interest rates. Wells Fargo is heavily focused on retail and commercial banking, and he was widely expected to be one of the big beneficiaries of higher interest rates.

Net interest income increased 36%, mainly due to the impact of higher interest rates and higher loan balances, the bank said.

Wells’ better-than-expected earnings were underpinned by a 28% increase in banking, with strong financial management performance. Commercial property revenues rose 29%, according to the bank, reflecting higher loan balances and the impact of rising interest rates.

Fears that the Federal Reserve could inadvertently plunge the economy into recession have increased this year, weighing heavily on bank stocks. That’s because more borrowers default in a recession, from credit cards to mortgages to commercial lines of credit.

Wells shares are down about 12% this year, outperforming the S&P 500.

Read full text Financial results announcement.

— CNBC’s Hugh Son contributed to the report.

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