AP

Wells Fargo profit falls buy loan growth buoys investors

Jul 15, 2022, 4:26 AM | Updated: Jul 17, 2022, 9:01 am

Wells Fargo, the nation’s largest mortgage lender, saw its second-quarter revenue and profit decline as rising interest rates pushed people out of the housing market.

The San Francisco bank earned $3.1 billion in the period, or 74 cents per share, coming up short of the 80 cents per share forecast by analysts surveyed by data provider FactSet. Revenue was $17 billion, down 16% from last year and below the $17.5 billion Wall Street projected. The bank had revenue of $20.3 billion and earnings per share of $1.38 in the same period a year ago.

Investors appeared less concerned with the bank’s topline numbers and more impressed with an 8% increase in loan balances, however. Wells saw growth in consumer and corporate lending and new credit card products.

Wells Fargo shares climbed 7% in afternoon trading.

This week, Wells Fargo launched its fourth new credit card since the beginning of the year and it expects to offer several more rewards-based cards. The bank said its new credit card accounts are up more than 60% from a year ago and credit card spending increased 28%.

Wells’ revenue from its home lending division fell by 53% in the quarter, as the housing market cooled in the face of rapidly rising interest rates. Mortgage loan originations, including refinancing, fell sharply in the quarter.

The Mortgage Bankers Association reported Wednesday that mortgage applications have declined 14% from last year and refinancings are down 80%. Sales of existing homes have fallen for four straight months, during what is generally the busiest time of year in real estate.

Average long-term U.S. mortgage rates rose to 5.51% this week and are expected to move even higher as the Federal Reserve continues its aggressive measures to combat four-decade high inflation. Most economists expect the Fed to raise its benchmark lending rate by at least another half-point when it meets later this month. Last month it raised the rate by three-quarters of a point, it’s biggest single increase since 1994.

Wells did see an increase in interest income, which jumped 16% to $10.2 billion from $8.8 billion in last year’s second quarter. The bank said that its non-interest income declined by 40%, partly reflecting a decline in deals and fewer companies going public. The bank wrote down $576 million in losses related to its venture capital investments as the stock market continued its decline in the second quarter.

Like other big banks, Wells also added to its loan-loss provisions — setting aside $580 million to cover potentially bad loans during economic downturns. JPMorgan Chase, which reported tepid second-quarter results on Thursday, set aside $428 million to cover defaults.

JPMorgan also reported Thursday that its investment banking revenue fell about 60%.

Bank stocks have been hit hard this year as investors fret that the Fed’s actions to tame inflation could potentially push the U.S. economy into recession. A recession would mean some Americans would lose jobs, and likely start falling behind on their loans. These fears have more than offset the higher revenues that banks have earned from higher interest rates.

Despite Thursday’s gains, Wells shares are still down nearly 14% this year.

Wells is still trying to exit the strict federal guidelines that sets its asset cap just under $2 billion, hindering its ability to grow.

The Federal Reserve capped the size of Wells Fargo’s assets in 2018 after a series of scandals, most notably the uncovering of millions of fake checking accounts its employees opened to meet sales quotas.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Kamala Harris speaking at podium...

Associated Press

Harris has support of enough Democratic delegates to become party’s presidential nominee

Vice President Kamala Harris won the backing of more than two-thirds of the Democratic delegates she needs to become her party's nominee and set a fundraising record Monday, as top Democrats rallied to her in their bid to defeat Republican Donald Trump.

1 day ago

Global technology outage causes chaos on Friday morning...

Associated Press

Faulty software update causes havoc worldwide for airlines, hospitals and governments

A global technology outage grounded flights, knocked banks and hospital systems offline and media outlets off air on Friday morning.

5 days ago

Republican presidential candidate former President Donald Trump arrives during the second day of th...

Associated Press

Donald Trump celebrated by former rivals at Republican National Convention

Former president Donald Trump was celebrated at the Republican National Convention by former rivals, including Nikki Haley and Ron DeSantis.

7 days ago

FILE - Members of the Henderson Fire Department load Deb Billet, 66, into an ambulance before trans...

Associated Press

Things to know about heat deaths as a dangerously hot summer shapes up in the western US

A dangerously hot summer is shaping up in the U.S. West, with heat suspected in dozens of recent deaths.

10 days ago

FILE - Dr. Ruth Westheimer participates in the "Ask Dr. Ruth" panel during the Hulu presentation at...

Associated Press

Dr. Ruth Westheimer, the sex therapist who became a pop icon, has died

Dr. Ruth Westheimer, the sex therapist who became a pop icon, media star and best-selling author, has died.

11 days ago

Biden proposes rule to protect 36 million workers from extreme heat...

Associated Press

Biden proposes new rule to protect 36 million workers from extreme heat

President Joe Biden on Tuesday proposed a new rule to address excessive heat in the workplace, warning — as tens of millions of people in the U.S. are under heat advisories — that high temperatures are the country's leading weather-related killer.

21 days ago

Sponsored Articles

...

Day & Night Air Conditioning, Heating and Plumbing

Beat the heat, ensure your AC unit is summer-ready

With temperatures starting to rise across the Valley, now is a great time to be sure your AC unit is ready to withstand the sweltering summer heat.

...

Condor Airlines

Condor Airlines can get you smoothly from Phoenix to Frankfurt on new A330-900neo airplane

Adventure Awaits! And there's no better way to experience the vacation of your dreams than traveling with Condor Airlines.

...

DESERT INSTITUTE FOR SPINE CARE

Desert Institute for Spine Care is the place for weekend warriors to fix their back pain

Spring has sprung and nothing is better than March in Arizona. The temperatures are perfect and with the beautiful weather, Arizona has become a hotbed for hikers, runners, golfers, pickleball players and all types of weekend warriors.

Wells Fargo profit falls buy loan growth buoys investors