Wells Fargo on Wednesday reported a second-quarter profit or loss that exceeded Wall Street’s expectations as the company continued to disburse funds deferred during the Covid-19 pandemic to guard against massive credit losses.
The bank’s shares rose 0.5% premarket following the announcement of the financials. Here’s what the second quarter looks like compared to Wall Street estimates.
Earnings: $ 1.38 earnings per share versus 97 cents per share expected, according to Refinitiv, a sharp reduction in losses incurred in the second quarter of 2020.
Income: $ 20.27 billion versus an expected $ 17.77 billion, according to Refinitiv estimates, up 10% from the same quarter a year ago.
Wells Fargo’s results were boosted by the release of its $ 1.6 billion in loan loss reserves as consumers performed better than the bank expected amid the pandemic recession. Financial companies began to free up those reserves as the economic recovery accelerated in 2021, resulting in higher profits.
Wells also reported on a net interest margin – a measure of how much a bank makes from the difference between what it pays on deposits and what it borrows – 2.02% per quarter. Analysts were expecting 2.05%, according to FactSet. Persistently low interest rates continued to put pressure on this part of the banking business.
CEO Charlie Scharf said in a press release that demand for the bank’s loans remained somewhat subdued despite the economic recovery.
Charles Scharf, CEO of Wells Fargo & Co., listens to the House of Representatives Financial Services Committee hearing in Washington, D.C., USA, on Tuesday, March 10, 2020.
Andrew Harrer | Bloomberg | Getty Images
“Wells Fargo has benefited from the ongoing economic recovery, strong markets that helped increase profits for our venture capital subsidiaries, and our progress in improving efficiency, but the headwind of low interest rates and moderate demand for loans remained,” the report said. profit and loss statement. … “Our top priority continues to be the creation of the appropriate risk and control infrastructure for a company of our size and complexity, and we continue to invest in additional resources and give this work significant management attention.”
Scarf, which came to power in late 2019, is focused on improving the costs and public image of his company after the 2016 fake account scandal drew close attention from federal lawmakers and led to numerous departures from the company’s top management.
The Federal Reserve responded by curbing the bank’s asset growth and forcing the bank’s new chief to focus on spending.
The bank reported an efficiency ratio of 66%, compared to FactSet’s estimate of 76.1%, indicating that its operating costs relative to its revenues improved from 80% in the June 2020 quarter.
A financial report from a San Francisco lender came almost a week after CNBC reported that it closing all existing personal credit lines in the coming weeks and stopped offering the item.
Wells Fargo’s credit lines allowed clients to borrow between $ 3,000 and $ 100,000. The bank has billed the lines as a means of consolidating higher interest credit card debt, paying for home renovations, or avoiding overdraft fees on linked checking accounts.
Wells said in a letter to clients that the move would allow him to focus on credit cards and personal loans.
While the move has displeased some customers, Wells is otherwise expected to return in 2021 amid the U.S. economic recovery thanks to the resumption of normal business activity.
Improving the job market and accelerating capital investment from the rollout of the Covid-19 vaccine have helped the stock market move quickly into the broader stock market since January.
Wells Fargo is up 43.2% this year, while peers Bank of America and JPMorgan Chase are up 31.5% and 22.4%, respectively. The S&P 500 is up 16.3% over the same period.
Wells has the smallest trading and investment banking divisions of the six largest US banks, and has grown in volume in recent months thanks to a flurry of IPOs and simple monetary policy.
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