Wells Fargo (WFC) posted weaker-than-expected second quarter earnings Friday, following on from a similarly disappointing report from its larger rival JPMorgan, as the group set aside more than half a billion dollars to cover for bad loan losses over the coming months.
Shares in the group moved higher in early trading, however, after CFO Mike Santomassimo indicated the bank will continue buying back shares, following Federal Reserve stress test results published last week, while keeping an eye on market volatility and interest rates. Better-than-expected second quarter results from Citigroup (C) also gave the broader banking sector a boost.
Wells Fargo said earnings for the three months ending in June came in at 74 cents per share, down 46.4% from the same period last year and well shy of the Street consensus forecast of 80 cents per share. Group revenues also missed forecasts, falling 16% to $17.028 billion as net interest income rose 16% to $10.2 billion.
The group also set aside $580 million to cover potential bad loans, a move echoed the caution expressed during yesterday's earnings release from JPMorgan (JPM). Wells Fargo had released around $1.26 billion in loan reserves over the same period last year, making this year's earnings comparison increasingly challenging.
"While our net income declined in the second quarter, our underlying results reflected our improving earnings capacity with expenses declining and rising interest rates driving strong net interest income growth," said CEO Charlie Scharf.
"Looking ahead, our results should continue to benefit from the rising interest rate environment with growth in net interest income expected to more than offset any further near-term pressure on noninterest income," he added. "We do expect credit losses to increase from these incredibly low levels, but we have yet to see any meaningful deterioration in either our consumer or commercial portfolios."
Wells Fargo shares were marked 6.2% higher in early Friday trading following the earnings release to change hands at $41.12 each, a move that trim's the stock's year-to-date decline to around 15%.
Earlier this week, Wells Fargo's larger rival, JPMorgan, posted a 27% decline in second quarter earnings, with an $8.6 billion tally that missed Street forecasts, and set aside $1.1 billion in reserves to set against bad loans and credit losses, linked in part to the 'deteriorating' economic outlook.
JPMorgan CEO Jamie Dimon said geopolitical tension, high inflation, waning consumer confidence, interest rate uncertainty and the war in Ukraine "are very likely to have negative consequences on the global economy sometime down the road."
