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Wells Fargo profit rises 86% thanks to increase in loans, cost-cutting measures

Wells Fargo profit rises 86% thanks to increase in loans, cost-cutting measures
Written by Publishing Team

Wells Fargo on Friday beat analysts’ estimates of fourth-quarter earnings as rebounding US economic growth encouraged more customers to take out loans and the bank kept a tight cover on costs.

Profit jumped 86% to $5.8 billion, or $1.38 per share, boosted by a $943 million gain from the sale of the bank’s institutional trust and asset management units.

Overall, the core business was strong, with loans issued late in the year up 1% from the previous year and 4% higher from the previous quarter.

“The changes we’ve made to the company and continued strong economic growth prospects make us feel good about where we are in 2022,” CEO Charlie Scharf said in a statement.

Wells Fargo shares are nearly flat in pre-market trading, after being up 20% since the start of the year.

The bank said loan growth in the last half, which grew by 5% as government stimulus programs kicked in, has been particularly strong in auto lending.

Meanwhile, non-interest expenses fell 11% to $13.2 billion, driven by lower staff costs, as well as lower restructuring costs and operating losses, capping a year of significant cost reduction at the bank.

On a call with the media, Wales Chief Financial Officer Mike Santomasimo said the bank is aiming for additional cost reductions of $3.3 billion in 2022, driven by increased digital customer use and a reduced real estate footprint of the bank.

A person in the shadows sits behind the wheel of a car near an outside wall with the Wells Fargo logo
Wells Fargo has seen particular growth in auto loans.
Getty Images

Scharf, who has made cost cuts a cornerstone of his turnaround plan, has aimed to save $10 billion annually over the long term.

The fourth largest US bank has been in the regulators’ sanctions fund since 2016 when the scandal of selling practices and billions in fines and damages surfaced.

Wells Fargo is also operating under a $1.95 trillion asset ceiling that the Federal Reserve imposed in 2018, which hampered its ability to raise interest income by improving loan and deposit growth.

“We also remain aware that we still have a multi-year effort to meet our regulatory requirements – with the potential for setbacks to continue along the way – and we continue our work to put exposures related to our historical practices behind us,” said Scharf.

Earnings per share exceed expectations

According to Refinitiv estimates, Wells Fargo earned $1.25 per share excluding items, compared to analysts’ average forecast of $1.13.

Total revenue rose 13% to $20.9 billion, also exceeding estimates of $18.9 billion.

Wells Fargo also reported an $875 million decrease in its provision for unrealized pandemic-related losses.

Wells Fargo CEO Charles Scharf
Wells Fargo, led by CEO Charles Scharf, saw total revenue rise 13% to $20.9 billion, also beating estimates.
Reuters

However, net interest income fell 1% and average loans decreased 3% in the quarter.

JPMorgan Chase beat analysts’ previous estimates on Friday, driven by a stellar performance in investment banking, while Citigroup’s earnings were hurt by a slowing trading arm and weak consumer banking.

Investors focused on the benefiting banks of the Federal Reserve suggesting that it may raise interest rates sooner than expected due to persistent inflation, although the rapidly spreading Omicron COVID-19 variable has some worried that the economic outlook could turn bleak.

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