Wells Fargo on Wednesday reported second quarter earnings and revenue that exceeded Wall Street expectations as it continued to unlock funds it had set aside during the Covid-19 pandemic to protect against losses generalized loans.
The bank’s shares rose 0.5% in pre-market trading after the results were announced. Here’s how the second quarter compared to Wall Street estimates.
Earnings: $ 1.38 in earnings per share vs. 97 cents per share expected, according to Refinitiv, a sharp turnaround from the loss it suffered in the second quarter of 2020.
Returned: $ 20.27 billion versus $ 17.77 billion expected, according to estimates by Refinitiv, an increase of 10% from the same quarter a year ago.
Wells Fargo’s results were boosted by a release of $ 1.6 billion from its credit loss reserves, with consumers performing better than the bank expected amid the pandemic recession. Financial firms began to release these reserves as the recovery accelerated in 2021, boosting profits.
Wells also reported a net interest margin – a measure of how much a bank earns for the difference between what it pays on deposits and what it takes on loans – of 2.02% for the quarter. Analysts were expecting 2.05%, according to FactSet. Persistently low interest rates continued to weigh on this part of banking activity.
CEO Charlie Scharf said in a press release that demand for the bank’s loans remains somewhat subdued despite the economic recovery.
Charles Scharf, CEO of Wells Fargo & Co., listens during a House Financial Services Committee hearing in Washington, DC, U.S., Tuesday, March 10, 2020.
Andrew Harrer | Bloomberg | Getty Images
“Wells Fargo has benefited from the continued economic recovery, strong markets that helped generate gains in our affiliated venture capital businesses and our progress in improving efficiency, but headwinds from Low interest rates and lukewarm loan demand remained, ”Scharf said in the earnings release. . “Our top priority continues to build an appropriate control and risk infrastructure for a company of our size and complexity and we continue to invest in additional resources and devote close management attention to this work.”
Scharf, who took office at the end of 2019, is focused on improving his company’s costs and public image after a fake account scandal in 2016 sparked close scrutiny from federal lawmakers and led to multiple departures of senior executives from the company.
In response, the Federal Reserve capped the growth of the bank’s assets and forced the new bank executive to focus on spending.
The bank said an efficiency ratio of 66% compared to the FactSet estimate of 76.1%, indicating that its operating expenses as a share of revenue improved from 80% in the June quarter. 2020.
The San Francisco-based lender’s financial update came nearly a week after CNBC announced it was closing all existing personal lines of credit in the coming weeks and stopped offering the product.
Wells Fargo lines of credit had allowed customers to borrow from $ 3,000 to $ 100,000. The bank charged the lines as a way to consolidate higher interest rate credit card debt, pay for home renovations, or avoid 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.
Although this decision angered some customers, Wells is also posting a comeback in 2021 amid an economic recovery in the United States thanks to the resumption of normal commercial activity.
Improving the job market and accelerating capital spending thanks to the deployment of the Covid-19 vaccine have helped bank equity to blow into the broader stock market since January.
Wells Fargo is up 43.2% so far this year, while its 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.
Of the six largest U.S. banks, Wells has the smallest trading and investment banking divisions, areas its peers have grown in recent months thanks to a wave of initial public offers and accommodative monetary policy,
Did you like this article?
For exclusive stock picks, investment ideas and CNBC’s global live stream
Register for CNBC Pro
Start your free trial now