Wells Fargo (WFC) posted weaker-than-expected third quarter earnings Friday as it set aside nearly $800 million in credit reserves, but a big jump in net interest income helped boost the lender's overall revenues firmly past Street forecasts, sending shares higher in pre-market trading.
Wells Fargo said earnings for the three months ending in September came in at 85 cents per share, down 27.4% from the same period last year and well shy of the Street consensus forecast of $1.09 per share. The bank said it took a 45 cent hit to its bottom line due to what it called "a variety of historical matters, including litigation, customer remediation, and regulatory matters."
The group agreed to pay a $3 billion fine in 2020 to both the U.S. Department of Justice and the Securities and Exchange Commission following accusations of fraud and illegal sales tactics related to the so-called 'fake account' scandal.
Group revenues, however, topped forecasts, rising 3.6% to $19.05 billion as net interest income rose 36% to $12.1 billion.
The group also set aside $784 million to cover potential bad loans, a move that echoed the caution expressed from JPMorgan Chase (JPM), which set aside $808 million amid what CEO Jamie Dimon described as "significant headwinds" for the global economy.
Wells Fargo had released around $1.4 billion in loan reserves over the same period last year, making this year's earnings comparison increasingly challenging.
"We have been focused on increasing our earnings capacity and see the positive impacts of rising interest rates driving strong net interest income growth and our continued focus on improving operating efficiencies resulting in lower expenses excluding the operating losses above," said CEO Charlie Scharf. "Credit performance remains strong and we are continuing to invest in our technology platforms, digital platforms and an expanded product set.”
"Both consumer and business customers remain in a strong financial condition, and we continue to see historically low delinquencies and high payment rates across our portfolios," he added. "We are closely monitoring risks related to the continued impact of high inflation and increasing interest rates, as well as the broader geopolitical risks, and while we do expect to see continued increases in delinquencies and ultimately credit losses, the timing remains unclear."
Wells Fargo shares were marked 3.15% higher inearly trading immediately following the earnings release to change hands at $43.64 each.
Earlier this summer, Bloomberg News reported that Wells Fargo is preparing to significantly reduce its once-leading mortgage business.
Bloomberg said the shift, which is expected to include big changes in the way it deals with outside mortgage originators, is likely to lead to Wells Fargo focusing its home lending business to existing customers.
The bank said in a statement that it's "evaluating the size of our mortgage business to adapt to a dramatically smaller originations market" while "continuing to look across the company to prioritize and best position us to serve our customers broadly.”
