Wells Fargo said Friday that second-quarter profit declined as the firm set aside funds for bad loans and was hurt by declines in its equity holdings.
Here is what the company reported compared with what Wall Street was expecting.
The bank said in a statement that it had a profit of $3.12 billion, or 74 cents per share. The company's shares fell in premarket trading.
Excluding the impairment, the bank would have made 81 cents per share, beating the 80 cents per share estimate of analysts.
While our net income declined in the second quarter, our underlying results reflected our improving earnings capacity and rising interest rates driving strong net interest income growth.
Analysts and investors are watching bank results to see if there are signs of stress in the US economy. The possibility of a looming recession triggered by surging interest rates and broad declines in asset values has begun to appear in results.
In the second quarter, Wells Fargo recorded a $576 million impairment on equity securities related to its venture capital business. The bank had a $580 million provision for credit losses in the quarter, which is a sharp reversal from a year ago, when the bank benefited from the release of reserves as borrowers repaid their debts.
He expected credit losses to increase in the future.
The bank's revenue fell 16% to $17.03 billion in the quarter, roughly half a billion dollars below analysts' expectation, as fees from mortgage banking plummeted. The bank said that it had sold off operations that made $589 million in the previous year.
The higher interest rates gave a boost to the quarter. The benefit from higher rates would more than offset the additional pressure on fees from mortgages and other operations.
Wells Fargo executives said last month that second-quarter mortgage revenue was headed for a 50% decline from the first.
In the second quarter alone, the Federal Reserve raised rates by 125 basis points. It was expected that Wells Fargo would be one of the big beneficiaries of higher rates.
Concerns that the Fed could tip the economy into a recession have weighed on the shares of banks. In a recession, more borrowers would default on their loans.
The bank is still operating under a number of consent orders, including one from the Fed that caps its asset growth. Analysts want to know if progress is being made in resolving those orders.
Wells Fargo's shares dropped in line with the decline of the bank index.
Morgan Stanley disappointed on a worse-than- expected slowdown in investment banking fees as it posted disappointing results on Thursday.
Bank of America will report results on Monday.
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