Wells Fargo shares fall as bank’s profits cut in half by higher reserves, settlement costs

The disappointing earnings report came after Wells Fargo said earlier this week that it would retrench from the U.S. mortgage market. Read more...

People walk past a Wells Fargo bank on 14th Street on December 20, 2022 in New York City. 

Michael M. Santiago | Getty Images

Wells Fargo shares came under pressure Friday after the bank reported shrinking profits, weighed down by a recent settlement and the need to build-up reserves amid a deteriorating economy.

The stock fell more than 4% in premarket trading.

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Here’s how the bank did:

  • Earnings: 67 cents a share, compared with $1.38 a share a year ago
  • Revenue: $19.66 billion, 5.7% lower than a year earlier and lower than the $19.98 billion expected, according to Refinitiv

Wells Fargo’s net income tumbled 50% to $2.86 billion, or 67 cents a share, from $5.75 billion, or $1.38 per share, a year ago. The big decrease was driven in part by lower mortgage banking on fewer originations, the bank said.

In the latest period, the bank set aside $957 million for credit losses after reducing its provisions by $452 billion a year ago. The provision included a $397 million increase in the allowance for credit losses reflecting loan growth and a less favorable economic environment, the bank said.

The disappointing earnings report came after the bank announced earlier this week that it would retrench from the U.S. mortgage market. Meanwhile, Wells Fargo also said last month that it would have a $2.8 billion after tax operating loss tied to legal and regulatory costs.

“Though the quarter was significantly impacted by previously disclosed operating losses, our underlying performance reflected the progress we are making to improve returns,” CEO Charlie Scharf said in a statement. “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 initiatives.”

As the most mortgage-dependent of the six biggest U.S. banks, Wells Fargo has faced pressure as sales and refinancing activity has fallen steeply amid mortgage rates that have topped 6%. The bank said its home lending revenue was down 57% this quarter.

Shares of Wells fell nearly 14% in 2022, faring better than the S&P 500 as the bank’s retail and commercial banking benefited from rising rates. The stock is up about 3.7% year to date.

“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,” Scharf said.

CNBC’s Hugh Son contributed reporting.

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