Wells Fargo Posts Stronger-Than-Expected Earnings -- 2nd Update
July 14 2017 - 9:30AM
Dow Jones News
By Peter Rudegeair and Emily Glazer
Wells Fargo & Co. said its second-quarter profit rose 4.5%
as the nation's third-largest bank by assets reaped the benefits of
higher interest rates.
The bank reported a profit of $5.81 billion, or $1.07 a share.
That compares with $5.56 billion, or $1.01 a share, in the same
period of 2016. Analysts polled by Thomson Reuters had expected
earnings of $1.01 a share.
Revenue rose slightly to $22.17 billion, but fell short of the
$22.47 billion expected by analysts.
Shares declined 1.7% premarket.
The bank's results included a $186 million tax benefit during
the second quarter, most of which was related to a deal it reached
in June to sell its commercial insurance business. That boosted
Wells Fargo's per-share earnings by 4 cents. Excluding this, the
company's earnings would have come in at $1.03.
Net interest income at the bank rose 6.4% to $12.48 billion from
the same period last year. Big banks' loan businesses have been
helped in recent weeks by higher U.S. interest rates and bond
yields.
The bank's net interest margin, a measure of how profitably it
can lend out its customers' deposits, rose to 2.9% from 2.86% last
June, and its return on equity rose to 11.95% from 11.7%. The bank
said it exercised discipline in repricing deposits, which helped
them capture more of an increase in loan yields.
That happened even as its loan book stalled at $957 billion
thanks in part to declines in auto balances. The bank also faced
challenges in its fee-based businesses, with revenue down 7% to
$9.69 billion due in part to a 19% drop in mortgage-banking
income.
Wells Fargo, led by Chief Executive Timothy Sloan, had been one
of the most consistent big banks at growing earnings and revenue.
Shares dropped though last year after the bank agreed to a $185
million settlement with two regulators and a city official over
opening as many as 2.1 million accounts with fictitious or
unauthorized information.
It also continues to face a spate of state and federal
investigations that the bank has said it is cooperating with.
While the overall impact of the sales-practices scandal on Wells
Fargo's bottom line hasn't yet been dramatic, investors and
analysts are pressing the bank to show it can grow. But it has
responded that it may take time, and meanwhile in May announced an
additional $2 billion in cost cuts by the end of 2018.
Costs at Wells Fargo increased 5.2% to $13.54 billion from
$12.87 billion in the second quarter of 2016. Expenses as a share
of revenue in the second quarter was 61.1%, slightly above the new
target of 60% to 61% set at an investor presentation in May. That
is also higher than the two-year target the bank set last year of
55% to 59%. Beyond the costs associated with the sales scandal, the
bank has said its efficiency ratio was also hurt by lower loan
growth and higher funding costs.
Wells Fargo's return on equity, continued to grind lower in the
quarter, at 11.95%
The bank's shares bounced back following the election, rising
22%. That compares with a 29% jump by the KBW Nasdaq Bank index of
large commercial lenders over the same period.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and Emily
Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
July 14, 2017 09:15 ET (13:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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