Wells Fargo Earnings Jump as Economy Bounces Back -- 3rd Update
April 14 2021 - 12:29PM
Dow Jones News
By Ben Eisen
Wells Fargo & Co. said earnings soared in the first three
months of the year after the bank released some of the money it put
aside for bad loans earlier in the pandemic.
The San Francisco-based lender on Wednesday posted a profit of
$4.74 billion for the first quarter, up from $653 million a year
earlier. A year ago, Wells Fargo and other big banks set aside
billions of dollars to prepare for a coronavirus recession,
hammering their profits at the time.
Per-share earnings were $1.05, beating the 71 cents forecast in
a FactSet poll of analysts.
Wells Fargo said it had revenue of $18.06 billion, up 2% from
$17.72 billion a year earlier. That beat the $17.52 billion
expected by analysts.
The bank's sevenfold rise in profits came during what is shaping
up to be an economic resurgence. That has prompted banks to release
some of the money they stowed away last year to protect against
soured loans, which has boosted their bottom lines.
"Economic trends improved during the quarter, and while there
are risks, the likelihood of improvement continues to increase,"
Chief Executive Charles Scharf said in a call with analysts
Wednesday.
JPMorgan Chase & Co. and Goldman Sachs Group Inc. both
reported sharply higher first-quarter profits on Wednesday.
The buoyant economy has been a boost for bank investors, lifting
shares of the largest lenders far more than the broader market so
far this year. Wells Fargo, a laggard last year, has been among the
biggest gainers this year, rising 32% so far in 2021. In morning
trading, shares rose about 5%.
While consumers and businesses could still default en masse when
government aid programs wear off, banks are deciding they pocketed
more than they needed at the beginning of the crisis. Wells Fargo
said that it released $1.05 billion from its reserves in the first
quarter. Net charge-offs declined from a year ago.
Wells Fargo is operating under a three-year-old cap on its
growth, punishment for its 2016 fake-account scandal. That has
pushed executives to turn to cost-cutting.
The bank's expenses declined from the previous quarter, but were
still up from a year ago. They totaled $13.99 billion in the first
quarter, up 7% from $13.05 billion a year earlier.
Wells Fargo executives said earlier in the year that they wanted
to cut at least $8 billion from the annual budget and recognize
roughly $3.7 billion of it this year. The bank has been laying off
employees, closing branches and shrinking its office space. Head
count shrank by about 4,000 in the first quarter.
The bank also sold its asset management and corporate trust
businesses in the first quarter. Mr. Scharf said executives hope to
see growth in the credit-card business and middle-market
investment-banking unit.
Banks have also been challenged by low interest rates, which
have eaten into the difference between what they pay to borrow
money and what they earn lending it out. Wells Fargo said its net
interest income fell 22% to $8.8 billion from $11.31 billion a year
earlier.
The bank's book of loans continued to shrink in the first
quarter, mirroring a drop-off in loan demand across the industry.
Consumer and commercial loans fell 15% from a year ago to $861.57
billion.
Noninterest income, which includes fees, rose 45% to $9.27
billion from $6.41 billion a year earlier.
Wells Fargo's investment-banking division had profits of $1.57
billion, a fivefold increase from a year earlier. It posted the
biggest profit since at least early 2019, when it first broke out
results for that division. Banks' Wall Street businesses have been
a bright spot during the pandemic, though Wells has a far smaller
bank than its peers.
Write to Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
April 14, 2021 12:14 ET (16:14 GMT)
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