Wells Fargo has said in its latest quarterly report that profit was down 48% from the same time last year due to bad loans and loss of revenue due to losing its equity investments.
In any case, here are the figures:
- Net earnings per share: 74 cents, with an 8 cent per share impairment of goodwill.
- In actuality, revenue came in at $17.03 billion instead of $17.53 billion.
According to a statement, the company’s profit dropped from $6.04 billion, or $1.38, a year earlier, to $3.12 billion, or 74 cents per share.
Analysts surveyed by Refinitiv expected Wells Fargo to earn 80 cents in the second quarter. The comparison between the numbers isn’t immediately clear.
Investors and analysts have studied bank results closely in search of any signs of stress on the United States economy. Despite continued repayments by borrowers of all types, signs of a looming recession have begun to appear in bank results, also caused by rising interest rates and a decline in asset values.
The bank said that “market conditions” forced it to post an impairment on the equity securities it holds in its venture capital business of $576 million. In addition, the bank set aside $580 million for credit losses in the quarter, which is a stark contrast to a year ago, when the bank enjoyed the release of reserves as borrowers repaid their debts.
Wells Fargo announced last month that second-quarter mortgage revenues would decline by 50% from the first quarter due to higher interest rates.
This is one of the consequences of the Federal Reserve raising rates by 125 basis points in the second quarter to fight inflation. Wells Fargo, focusing on commercial and retail banking, was expected to benefit significantly from a hike in interest rates.
But now some believe that the Fed could be triggering an economic downturn on its own, which has affected the banks’ share prices. This means that many more borrowers would default on loans, such as for credit cards, mortgages, and commercial lines of credit, during a recession.
Charlie Scharf has been CEO of the bank since October 2019. Although the bank is complying with many imposed orders relating to the 2016 Fake Accounts Scandal, such as one imposed by the Federal Reserve which caps their asset growth, it’s still in operation. The analysts would like to hear how Scharf is progressing on resolving those orders.
Wells Fargo stocks fell 19% this year, about the same as the decline of the KBW Bank Index.
As rival JPMorgan Chase built bad loan reserves, it missed expectations, and Morgan Stanley’s investment banking fee growth slowed worse than expected.
On Monday, Bank of America and Goldman Sachs will announce their respective earnings.
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