Wells Fargo swings to profit after release of loan loss reserves I Business
 
 
 
 
 
 

Wells Fargo swings to profit after release of loan loss reserves

/ 07:33 AM July 14, 2021

Wells Fargo & Co swung to a profit in the second quarter, smashing Wall Street expectations, as it released $1.6 billion in funds it had set aside to cover loans that might have gone bad.

The lender also had more room to cut costs in the quarter as expenses tied to its years-old sales practices scandal stabilized, although it struggled with slowing loan growth.

ADVERTISEMENT

Charlie Scharf, who was named Wells Fargo’s chief executive officer in September 2019, is battling to turn the bank around after two other chief executives failed to do so, and the bank had to spend billions of dollars for litigation and remediation expenses.

Wells Fargo reported a profit of $6 billion, or $1.38 per share, for the latest quarter, compared with a net loss of $3.85 billion, or $1.01 per share, a year earlier.

FEATURED STORIES

Wells Fargo swung to profit estimates on reserve release hike

Photo Credit: Pexels

Analysts on average had expected a profit of 97 cents per share, according to estimates from Refinitiv.

Its results in the prior-year quarter were hit by $9.5 billion in loan-loss reserves and a $1.2 billion loss tied to the sales scandal.

Wells Fargo shares were up 2.7% in morning trading.

“Wells Fargo benefited from the continued economic recovery, strong markets that helped drive gains in our affiliated venture capital businesses, and our progress on improving efficiency,” Scharf said in a statement.

Average loans fell to $854.7 billion in the quarter from $971.3 billion a year earlier, with commercial banking posting the biggest decline at 22%.

Soft loan demand combined with rock-bottom interest rates also sent net interest income – a key measure of how much lenders can make on the difference between what they earn from loans and pay out on deposits – 11% lower.

The lender said revenue at its banking unit was hurt by lower debt capital markets earnings and the impact of lower interest rates as well as an asset cap on deposits.

ADVERTISEMENT

The bank is not allowed to let its assets rise above $1.95 trillion under an order imposed by the Federal Reserve in 2018.

Wells Fargo has fewer ways to cushion declines in revenue from low interest rates as the bank does not have a large capital markets business like JPMorgan Chase or Citigroup Inc.

Bank of America Corp’s lending business also took a hit from low interest rates put in place to revive a pandemic-hit economy.

Bank-wide expenses at Wells Fargo fell 8%, primarily due to lower operating losses, as well as reduced spending on consultants and contractors, the bank said.

Total revenue rose 11% to $20.27 billion.

(Reporting by Noor Zainab Hussain in Bengaluru and Matt Scuffham in New York; Editing by Anil D’Silva)

Subscribe to our newsletters! Get updates right into your inbox

By providing an email address. I agree to the Terms of Use and acknowledge that I have read the Privacy Policy.
Don't miss out on the latest news and information.
TAGS: fund, revenue, Wells Fargo
For feedback, complaints, or inquiries, contact us.

Subscribe to our newsletters!
Get Updates right into your inbox

By providing an email address. I agree to the Terms of Use and
acknowledge that I have read the Privacy Policy.




We use cookies to ensure you get the best experience on our website. By continuing, you are agreeing to our use of cookies. To find out more, please click this link.