Wells Fargo profit falls 16%, higher rates hinder home buyers
Newslooks-
Wells Fargo, the nation’s largest mortgage lender, saw its second-quarter revenue and profit decline as rising interest rates pushed people out of the housing market.
The San Francisco bank earned $3.1 billion in the period, or 74 cents per share, coming up short of the 80 cents per share forecast by analysts surveyed by data provider FactSet. Revenue was $17 billion, down 16% from last year and below the $17.5 billion Wall Street projected. The bank had revenue of $20.3 billion and earnings per share of $1.38 in the same period a year ago.
Wells’ revenue from its home lending division fell by 53% in the period, as the housing market cooled in the face of rapidly rising interest rates. Mortgage loan originations, including refinancing, fell sharply in the quarter.
The Mortgage Bankers Association reported Wednesday that mortgage applications have declined 14% from last year and refinancings are down 80%. Sales of existing homes have fallen for four straight months, during what is generally the busiest time of year in real estate.
Average long-term U.S. mortgage rates rose to 5.51% this week and are expected to move even higher as the Federal Reserve continues its aggressive measures to combat four-decade high inflation. Most economists expect the Fed to raise its benchmark lending rate by at least another half-point when it meets later this month. Last month it raised the rate by three-quarters of a point, it’s biggest single increase since 1994.
Wells did see an increase in interest income, which jumped 16% to $10.2 billion from $8.8 billion in last year’s second quarter. The bank said that its non-interest income declined by 40%, partly reflecting a decline in deals and fewer companies going public. The bank wrote down $576 million in losses related to its venture capital investments as the stock market continued its decline in the second quarter.
Like other big banks, Wells also added to its loan-loss provisions — setting aside $580 million to cover potentially bad loans during economic downturns. JPMorgan Chase, which reported tepid second-quarter results on Thursday, set aside $428 million to cover defaults.
JPMorgan also reported Thursday that its investment banking revenue fell about 60%.
Bank stocks have been hit hard this year as investors fret that the Fed’s actions to tame inflation could potentially push the U.S. economy into recession. A recession would mean some Americans would lose jobs, and likely start falling behind on their loans. These fears have more than offset the higher revenues that banks have earned from higher interest rates.
Shares in Wells Fargo rose more than 4% Thursday morning but are still down more than 17% this year.
Wells is still trying to exit the strict federal guidelines that sets its asset cap just under $2 billion, hindering its ability to grow.
The Federal Reserve capped the size of Wells Fargo’s assets in 2018 after a series of scandals, most notably the uncovering of millions of fake checking accounts its employees opened to meet sales quotas.
Quarterly revenue fell 16%, profit dropped 48% to $3.12 billion
