Wells Fargo & Co.’s profit declined 21% in the first quarter, despite increased lending and a release of more than $1 billion in funds the bank had set aside for potential losses.
The San Francisco-based bank said Thursday that it made $3.67 billion in the first quarter, down from $4.64 billion a year ago. Per-share earnings totaled 88 cents, above the 81 cents expected from analysts polled by FactSet.
The bank posted revenue of $17.59 billion, down 5% from $18.53 billion a year ago. That came in just below expectations of $17.78 billion.
The declines in profit and revenue spell the end of the pandemic-era boom in bank profits. For the better part of two years, frenetic trading, a red-hot market for deals and lucrative mortgage businesses powered earnings at the country’s largest banks. No more. JPMorgan Chase & Co. on Wednesday reported a 42% drop in its first-quarter profit.
Wells Fargo also released $1.09 billion it had stockpiled to cover potential losses, helping limit the bank’s profit decline in the first quarter.
Some banks are once again preparing for rocky times ahead, concerned that too many interest-rate increases by the Federal Reserve could spark a recession.
Still, higher interest rates make banks’ bread-and-butter business of lending more profitable. Banks faced paltry lending profits for much of the pandemic after the Fed slashed interest rates to near zero in an effort to support a faltering economy.
Wells Fargo’s net interest income, a measure of lending profit, rose 5% to $9.22 billion.
The bank’s management in January estimated that net interest income could increase as much as 8% if the Federal Reserve raised interest rates three times in 2022. Investors now expect between nine and 10 quarter-point rate increases by the end of the year, according to CME Group.
Outstanding loans rose 6% from a year ago and 2% from the fourth quarter, a welcome increase after two years of sluggish loan growth during the pandemic.
Wells Fargo said earlier this year it expects loan growth in the mid-to-low single digits in 2022.
But rising rates are also starting to weigh on the mortgage business. The average rate on the 30-year fixed mortgage has been climbing steadily, and last week it reached its highest level since 2018.
Wells Fargo, which issued more mortgages than any other U.S. bank in 2021, said mortgage originations fell 27% from a year ago. JPMorgan, another big home lender, reported Wednesday that its mortgage originations dropped 37%.
Rising rates shrink the pool of borrowers who could save on their monthly mortgage payments by refinancing. Higher borrowing costs can also reduce demand from potential home buyers, who already must contend with fast-rising home prices. Applications for purchase mortgages were down 6.4% for the week ended April 8, compared with the same period last year, according to the Mortgage Bankers Association.
Wells Fargo’s noninterest income fell 14% to $8.37 billion. Noninterest expenses in the first quarter totaled $13.87 billion, down 1% from a year earlier. Wells Fargo is trying to slash $10 billion from its budget.
Wells Fargo shares have risen about 1% since the beginning of the year, a better showing than any other big U.S. bank. The KBW Nasdaq Bank Index, which tracks shares of the largest lenders, is down about 10% so far in 2022.
This story has been published from a wire agency feed without modifications to the text
