Wells Fargo Returns to Profitability as Pandemic Hit Subsides -- 3rd Update
October 14 2020 - 10:06AM
Dow Jones News
By Ben Eisen
Wells Fargo & Co. said Wednesday that its third-quarter
profit fell 56%, though the bank signaled it was prepared for a
wave of soured loans.
The San Francisco-based lender said it made $2.04 billion in the
third quarter, down from a profit of $4.61 billion a year earlier.
Per-share earnings were 42 cents. Analysts polled by FactSet had
expected 44 cents.
Still, the results were an improvement from the second quarter,
when the bank lost $2.38 billion as it set aside money for
potential bad loans.
The pandemic has curtailed earnings across the banking sector
this year by forcing lenders to set aside tens of billions of
dollars to prepare for loan defaults. Now, with massive stockpiles
in place, banks believe they have enough stashed away to let them
press pause. Profit rose at JPMorgan Chase & Co. from a year
ago and fell at Citigroup Inc., the banks said Tuesday.
Wells Fargo, one of the nation's largest consumer lenders, put
aside an additional $751 million in the third quarter for sour
loans, largely in its consumer bank. That is significantly smaller
than the $9.57 billion it set aside in the second quarter and $3.83
billion in the first quarter.
Loan losses remained low, but the bank said they may be delayed
because it has offered payment deferrals during the pandemic.
"As we look forward, the trajectory of the economic recovery
remains unclear as the negative impact of Covid continues and
further fiscal stimulus is uncertain," CEO Charles Scharf said in a
statement.
The bank entered the coronavirus recession in worse shape than
its peers, hobbled by declining revenue and a bloated expense base.
It has also been attempting to claw its way back from a
four-year-old fake-accounts scandal.
In the third quarter, the bank reported revenue of $18.86
billion, down 14% from $22.01 billion a year earlier. Analysts had
expected revenue of $17.99 billion.
Mr. Scharf is now a year into the job. He has said the bank
should cut $10 billion from its annual expenses, beginning a
process that is expected to last well into next year and result in
tens of thousands of layoffs.
Noninterest expenses in the third quarter totaled $15.23
billion, roughly flat from a year earlier. That included $718
million of restructuring charges, which it said were largely tied
to severance payments for employees. The bank cut its employee head
count by 1,100 in the third quarter.
Expenses also included $961 million of customer remediation
payments, likely linked to the sales-practices scandal.
Rock-bottom interest rates have dealt another blow to banks,
reducing the income they can earn from lending money. Wells Fargo's
interest income fell 19% from a year ago to $9.37 billion, while
its noninterest income fell 9% to $9.49 billion.
The bank's shares have fallen by more than 50% so far this year.
They were down 1.6% Wednesday morning in premarket trading.
Write to Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
October 14, 2020 09:51 ET (13:51 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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