TMN - Wells Fargo

Wells Fargo’s earnings reflect rough start

Wells Fargo & Co. saw its profits take a hit in the first three months of 2022, finishing a pandemic-era boom.

The fourth-largest US lender reported lower-than-expected first-quarter revenue due to a drop in mortgage lending. It skidded by 5.00% year-over-year to $17.59 billion, compared with the estimated $17.80 billion.

Accordingly, its profit slumped 20.80% YoY to $3.67 billion or $0.88 per share. This figure was lower than the average analyst forecast of $0.80 per share.

The slowing mortgage demand weighed on results as the Federal Reserve hiked interest rates to combat inflation. Wells Fargo noted that home lending grappled with an annual drop of 33.00%.

Analysts said that the American central bank has made it clear to take necessary actions to combat mounting prices. The possible aggressive move will undoubtedly reduce economic growth.

The latest result also comes as Russia’s invasion of Ukraine has injected volatility into financial markets. The ongoing conflict has raised concerns about global economic growth, adding risks to the downside of the financial company.

Meanwhile, a decrease of $1.10 billion in allowances for credit losses cushioned the earnings. Subsequently, the reduction added $0.21 of profit per share.

Wells Fargo explained that it released the funds set aside for potential losses due to reduced uncertainty around the economic impact of the COVID-19 pandemic.

Unlike its big bank rivals, the business focuses on retail and commercial banking customers. Experts anticipated the company to be among the biggest beneficiaries of rising interest rates and a rebound in loan growth.

In the last quarter, average loans posted at $898.00 billion, representing 3.00% from the same period in 2021.

After the earnings call, shares of Wells Fargo plummeted 4.51% or 2.19 points to $46.35 per share.

Wells Fargo, Citi, Goldman Sachs Q1 Results

This year, Wall Street’s biggest bank players had a bumpy start, citing significant annual profit declines in their first-quarter reports.

Like Wells Fargo, Citibank saw a drop of 46.00% as Goldman Sachs dwindled by 42.00%. At the same time, Morgan Stanley edged down 11.00%.

Since the onset of the pandemic, banks have benefited from the longest bull run in history. They also hit record-high trade volumes and surging bank deal values. Moreover, the low-interest rates and big reserve releases bolstered profit spikes.

At present, Citi prepares for a massive plunge caused by geopolitical strife between Moscow and Kyiv. The bank added $1.90 billion to its reserves to work out losses from the war.

Meanwhile, Goldman Sachs’s net revenue climbed 21.00% to $2.10 billion. It primarily benefited from increased management fees and credit card balances.

Then, Morgan Stanley surpassed earnings estimates and obtained substantial equity and fixed income revenue. It outperformed Goldman in merger and acquisition advisories, but business was still down overall.

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