Wells Fargo (WFC) posted stronger-than-expected fourth quarter earnings Friday, but set aside a larger portion of its reserves to compensate for rising loan risks as interest rates rise and the economy slows.
Wells Fargo said earnings for the three months ending in December came in at 67 cents per share, down 51.5% from the same period last year but just ahead of the Street consensus forecast of 62 cents per share.
Group revenues, however, missed forecasts, slipping 5.7% to $19.66 billion, compared to analysts' estimates of a $19.98 billion tally. The group also set aside $957 million to cover bad loan risk, more than double last year's fourth quarter total and nearly $100 million higher than the Street consensus forecast.
“Though the quarter was significantly impacted by previously disclosed operating losses, our underlying performance reflected the progress we are making to improve returns," said CEO Charles Scharf. "Rising interest rates drove strong net interest income growth, credit losses have continued to increase slowly but credit quality remained strong, and we continue to make progress on our efficiency initiative."
“Our customers have remained resilient with deposit balances, consumer spending, and credit quality still stronger than pre-pandemic levels. As we look forward, we are carefully watching the impact of higher rates on our customers and expect to see deposit balances and credit quality continue to return toward pre-pandemic levels,” he added. “We continue to prioritize building an appropriate risk and control infrastructure and I am optimistic about our future as we continue to advance our efficiency initiatives, invest to better serve our customers and grow our business.”
Wells Fargo shares were marked 1% lower in early Friday trading immediately following the earnings release to change hands at $42.39 each, trimming the stock's six-month decline to around 8.5%.
Late last month, The U.S. Consumer Financial Protection Bureau ordered Wells Fargo to pay more than $2 billion to in consumer redress, as well as a $1.7 billion civil penalty, for a series of actions including misapplied loan payments, improper home foreclosures, illegally repossessed vehicles and surprise overdraft fees.
The fine adds to a $3 billion payment made in 2020 to 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.
“Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families,” said CFPB Director Rohit Chopra. “The CFPB is ordering Wells Fargo to refund billions of dollars to consumers across the country. This is an important initial step for accountability and long-term reform of this repeat offender.”
