Wells Fargo WFC Q4 2022 Earnings

People walk past a Wells Fargo bank on 14th Street on December 20, 2022 in New York City.

Michael M. Santiago | Getty Images

Wells Fargo reported a cut in profits on Friday, weighed down by a recent settlement and the need to build reserves amid a deteriorating economy.

The stock erased earlier losses to trade 2% higher in Friday trading.

Here’s how the bank did it:

  • Earnings: 67 cents per share, compared with $1.38 per share a year ago
  • Revenue: $19.66 billion, down 5.7% from a year earlier and below forecasts of $19.98 billion, according to Refinitiv

Wells Fargo’s net income fell 50% to $2.86 billion, or 67 cents a share, from $5.75 billion, or $1.38 a share, a year ago. The large decline was driven, in part, by reduced mortgage banking in fewer originations, the bank said.

In the latest period, the bank set aside $957 million for credit losses after reducing its provisions by $452 million a year ago. The provision included a $397 million increase in the provision for credit losses reflecting loan growth and a less favorable economic environment, the bank said.

The disappointing earnings report came after the bank announced earlier this week that it would exit the U.S. mortgage market. Meanwhile, Wells Fargo also said last month it would have an after-tax operating loss of $2.8 billion tied to legal and regulatory costs.

The combined impact of legal, regulatory and customer remediation efforts reduced Well Fargo’s earnings by 70 cents per share.

After excluding severance costs and a tax gain, Wells Fargo earned 61 cents a share, below the 66 cents expected by analysts polled by Refinitiv.

“While the quarter was significantly impacted by previously disclosed operating losses, our underlying performance reflected the progress we are making to improve yields,” CEO Charlie Scharf said in a statement. “Rising interest rates drove strong growth in net interest income, credit losses have continued to rise slowly, but credit quality remained strong and we continue to make progress on our efficiency initiatives.”

As the main mortgage lender of the six US banks, Wells Fargo has faced pressure as sales and refinancing activity has fallen sharply amid mortgage rates that have climbed above 6%. The bank said its home loan income fell 57% this quarter.

Wells shares fell nearly 14% in 2022, outperforming the S&P 500, as the bank’s retail and commercial banking benefited from rising rates. Shares are up about 3.7% year to date.

“As we look forward, we are carefully watching the impact of higher rates on our customers and expect to see deposit balances and credit quality continue to return to pre-pandemic levels,” Scharf said.

CNBC’s Hugh Son contributed reporting.

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