Wells Fargo misses estimates on mortgages, reserves

Wells Fargo missed analysts’ earnings estimates as home lending slowed and the bank set aside more than expected for potentially soured loans as the Federal Reserve’s rate hikes started to cool the once-hot housing market.

The lender reported a $580 million loan-loss provision, according to a statement Friday, while analysts had expected $414.7 million. That marks a turnaround from last year when a $1.26 billion release of provisions padded results, and brought second-quarter net income to $3.12 billion, below the $3.19 billion analysts had expected. 

Houses in Meridian, Idaho, US, on Thursday, June 30, 2022. The housing market slowdown is having ripple effects across the industry and mortgage lenders are forecasting a slump in business.

Jeremy Erickson/Bloomberg

The report offers another look at how the biggest U.S. lenders fared through a quarter marked by rate hikes, persistent inflation and recession fears. Rival JPMorgan Chase temporarily suspended share buybacks and reported second-quarter results that fell short of analysts’ estimates on Thursday, driving its shares down 3.5%. 

Shares of San Francisco-based Wells Fargo, which fell 19% this year through Thursday, dropped 3.4% to $37.42 at 6.54 a.m. in early trading in New York.

Mortgage banking income fell 79% to $287 million as rates surged in the quarter, slowing what had been a soaring housing market. That missed analysts’ $392.4 million estimate. Wells Fargo is among firms that have been laying off and reassigning staff in that division.

Chief Financial Officer Mike Santomassimo warned in June that the unit’s income could fall by half in the second quarter from the first — and it indeed fell 59% in that period. 

Net interest income rose to $10.2 billion, matching what analysts were expecting. The 16% increase demonstrates the boost banks are already getting from the Fed’s rate hikes. 

Noninterest expenses were $12.9 billion in the quarter, down 3.4% from a year earlier while higher than analysts expected. Cost-cutting has been a key part of Scharf’s plan to remake the firm since taking over almost three years ago, including by trimming the workforce. Headcount fell to 243,674 at the end of the second quarter, from 246,577 three months earlier.

Wells Fargo also remains under a costly Fed-imposed asset cap limiting its size to its level at the end of 2017. Period-end assets declined 3.3% from a year ago to $1.88 trillion.