A slowdown in mortgage lending and a fall in the value of stock investments helped Wells Fargo WFC 6.17% & Co.’s second-quarter profit fall 48%.
The San Francisco-based bank said it made $3.12 billion in the quarter, compared to $6.04 billion a year ago. Earnings per share came in at 74 cents, below the 80 cents expected by analysts polled by FactSet.
The bank reported revenue of $17.03 billion, down 16% from $20.27 billion a year earlier. Analysts were expecting $17.48 billion.
The market downturn prompted Wells Fargo to take a $576 million charge to account for the decline in the value of its venture capital and private equity investments. Meanwhile, rising interest rates weighed on the bank’s mortgage business and dried up demand for refinancing. Wells Fargo, one of the nation’s largest mortgage lenders, said lending fell 36% in the second quarter.
“It’s going to be a challenging mortgage market over the next few quarters as things start to stabilize and we see where interest rates go,” Wells Fargo chief financial officer Mike Santomassimo said when speaking to reporters Friday morning .
Investors are watching the big banks’ earnings for signs that a recession is on the horizon. JPMorgan Chase & Co. and Morgan Stanley reported lower second-quarter earnings on Thursday, sending banking stocks broadly lower. Bank stocks tend to rise and fall with expectations for the broader economy as their companies closely track the financial health of consumers and businesses.
Wells Fargo shares rose $2.39, or 6.2%, to $41.13 on Friday, its highest close since early June. The bank’s shares are down 14% for the year, compared to a 19% decline in the S&P 500.
The bank said it committed $235 million in new funds to cover potential losses from loan growth during the quarter. A year ago, the bank released $1.64 billion in funds it had set aside for potential loan losses.
Loans outstanding increased 11% year-on-year and 4% sequentially. Wells Fargo’s commercial segment drove growth, posting a 15% increase year over year. Loans in the bank’s consumer division rose 5%.
The bank said its net interest income, a measure of lending profit, rose 16% to $10.2 billion thanks to higher interest rates and loan balances. Wells Fargo expects net interest income to increase about 20% in 2022 compared to 2021.
The Federal Reserve has hiked interest rates three times so far this year, including twice in the second quarter. Higher interest rates usually benefit banks, but investors fear the central bank’s rapid rate hikes could plunge the economy into recession.
According to economists and the latest GDP numbers, the US could be headed for a recession. But this recession could differ from previous ones because of one key indicator: unemployment. Jon Hilsenrath from the WSJ explains.
Auto lending was down 35%. Credit card and personal loan revenue both increased 7% year over year.
The bank’s noninterest income fell 40% to $6.83 billion. Spending totaled $12.88 billion, down 3% from the same period last year.
write to Orla McCaffrey at [email protected]
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