Wells Fargo stock slides despite beating expectations
Bank’s consumer loans fall by $58.1bn year-on-year
Wells Fargo’s stock price dipped on Thursday, despite the bank beating expectations for its third quarter.
Instead of the 99 cents forecast by analysts, the bank reported adjusted quarterly earnings $1.22 per share.
Profits jumped 59% year-on-year, while net income reached $5.1bn or $1.17 per share. Analysts had predicted net income of $1 per share and revenue of $18.37bn. Instead revenue came in at $18.83bn.
The most net income dependant bank in the United States enjoyed a $109m or 1% rise in net interest income and margin from the first quarter, driven by rising yields.
On a year-on-year basis, however, net interest income stood $470m or 5% lower. The firm stated this reflected, “the impact of lower loan balances due to soft demand and elevated 'prepayments', and the impact of lower yields on earning assets, partially offset by a decline in long-term debt and lower mortgage-backed securities premium amortisation."
Despite Wells Fargo’s headcount falling from 259,196 in the last quarter to 253,871, personnel expenses stood 1% higher year-on-year. The bank said that its efforts to improve efficiency via reducing headcount, “was more than offset by higher incentive and revenue-related compensation.”
$1.7bn reserve release
Although the bank’s stock briefly rose in pre-market trading, after the opening bell scrutiny increased as to the actual strength of the bank’s expectation-beating figures. Third-quarter earnings were helped in large part by a $1.7bn release of strategic loan loss reserves that had been put aside during the Covid-19 crisis.
The bank’s falling total average loans also fell. Although commercial loans stood $1bn higher from the previous quarter at $478.2bn, consumer loans fell by nearly $2bn to $375.9bn. This constituted a $58.1bn slump from the third quarter of 2020.
Wells Fargo continues to operate under a $2trn asset cap set by the US Federal Reserve following an accounting scandal five years ago.
CEO Charlie Scharf said: “I believe we are making significant progress, and I remain confident in our ability to continue to close the remaining gaps over the next several years, though we may continue to have setbacks along the way.”
By early afternoon (EDT), Wells Fargo traded down by 2% at $45.10, 51.7% above its 2021 starting level.
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