Wells Fargo reported a 48 percent drop in quarterly profit on Friday as the bank set aside more funds to cover potential loan losses, while its mortgage lending business came under pressure from higher interest rates.
America’s fourth-largest bank set aside $580 million for loan losses in the second quarter, up from $1.26 billion a year ago, when tough monetary stimulus measures eased the pandemic and bolstered the economy.
In the last quarter, the bank’s reserve issuance helped offset the decline in the mortgage lending business. This quarter, higher interest rates dented demand for housing loans, bringing it down 53 percent from a year ago.
“We expect credit losses to rise from these incredibly low levels, but we have yet to see any significant deterioration in our consumer or business portfolios,” CEO Charlie Scharf said in a statement.
America’s fourth-largest bank earned $3.1 billion, or 74 cents a share, in the quarter ended June 30, compared with $6 billion, or $1.38 a share, a year earlier.
Analysts, on average, expected a profit of 80 cents per share, according to IBES Refinitiv forecasts.
Wells Fargo’s total revenue fell to $17.3 billion, down from $20.3 billion a year earlier.
The bank has faced regulatory sanctions since 2016 over governance and oversight failures related to a series of sales and other scandals.
Wells Fargo remains below the Federal Reserve’s $1.95 trillion asset limit, slowing growth in the loans and deposits it needs to boost interest income and cover costs.
The average size of a Wells Fargo loan rose to $926.6 billion, compared to $854.7 billion a year earlier. Residential credit recorded a 53 percent drop in earnings compared to the previous year.
Overall, non-interest expense decreased to $12.9 billion from $13.3 billion in the previous year.
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