The stock was down on Thursday after the bank reported mixed first-quarter results.
Wells Fargo (symbol: WF
) reported adjusted earnings of 88 cents per share, beating guidance of 81 cents per share, on revenue of $17.6 billion, below expectations of $17.8 billion.
Wells Fargo stock fell 5% to $46.05 on Thursday. The stock has lost 4.1% this year, but has gained nearly 9% over the past 12 months.
Over the past year, investors had rallied on growing confidence that the bank was making progress on its years-long regulatory issues stemming from its fake accounts scandal. Thursday’s earnings report cast doubt on the bank’s progress, prompting some investors to walk away. During the first quarter, Wells Fargo announced a $460 million increase in operating losses, primarily due to customer remediation spending.
“It’s just another reminder to investors that they’re not off the hook yet,” said Edward Jones analyst Kyle Sanders.
To the bank’s credit, resolving issues with regulators typically takes several years, said Christopher Marinac, director of research at Janney Montgomery Scott. He thinks the problems could be over by the end of fiscal 2023.
The bank’s net interest income rose 5% in the first quarter due to lower amortization of premiums on mortgage-backed securities, lower long-term debt and increase in loan balances. Non-interest income, however, fell 14%, due to lower mortgage bank income, the bank said.
The bank repurchased 110.1 million shares, of $6 billion, of common stock in the first quarter.
Wall Street entered earnings season with the grudging acceptance that these earnings will be weaker than a year ago, given that 2021 earnings were so strong.
) was the first to confirm the suspicions on Wednesday, posting a 42% decline in profits.
Wells Fargo continued the trend, with revenue down 5% from the same period last year. The decline was driven by lower revenues in the retail banking and lending, corporate and investment banking, and corporate segment.
“Our internal indicators continue to point to the strength of our customers’ financial situation, but the Federal Reserve has made it clear that it will take the necessary measures to reduce inflation and that will certainly reduce economic growth,” the CEO said. of Wells Fargo, Charlie Scharf. “Furthermore, the war in Ukraine adds additional downside risk.”
JPMorgan said on Wednesday it posted losses of $524 million due to market volatility and the broader impact of the Russian invasion. Earlier this month, chief executive Jamie Dimon said the Ukraine crisis could lead to billion-dollar losses.
Wells Fargo likely won’t be as directly affected by the war in Ukraine given that most of its operations are domestic, Edward Jones’ Sanders said. Any impact will be indirect and felt more intensely in the event of a global slowdown or if prices continue to soar.
The banking sector will get a big boost from the Fed’s decision to raise interest rates, with margins strengthening in the second and third quarters, Marinac said. Wells Fargo could be one of the biggest beneficiaries.
“While we will likely see an increase in credit losses from historic lows, we should be a net beneficiary of this as we will benefit from higher rates, we have a strong capital position and our weaker expense base creates higher margins from which to invest,” says Scharf.
Revenue from the bank’s commercial banking segment increased 12% year-over-year, with the middle market up 8% due to higher deposit and loan balances, as well as higher interest rates. higher interest. Because much of its business is domestic and tied to traditional lending services, the bank could be more sensitive to rising interest rates compared to its big four peers, Sanders said.
) also announced its results on Thursday.
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