Wells Fargo & Co said on Friday its second-quarter profit nearly halved as the bank set aside more funds to cover potential loan losses; while its mortgage lending business came under pressure from higher interest rates.
The fourth-largest U.S. bank reported a profit of $3.1 billion; or 74 cents per share, compared with $6 billion, or $1.38 per share, a year earlier. Its total loan loss provisions were $580 million in the quarter, including a $235 million increase due to loan growth.
Under an accounting standard that took effect in 2020, banks must factor the economic outlook into loan loss reserves. Last year, the bank had released $1.6 billion from its reserves; for loan losses as the economy rebounded from the pandemic.
Wells Fargo shares were up by around 4% in mid-morning trade, compared with a 1.45% bounce in the S&P500 index. Big bank executives have sounded cautious so far this earnings season; with JPMorgan Chase & Co’s Chief Executive Jamie Dimon likening the macroeconomic environment to a coming “storm.” Even other mortgage lenders have cut staff in recent months; as the industry downsizes after having expanded to handle a surge in demand during the pandemic. Wells Fargo said non-interest expenses fell by 3% on lower revenue-related compensation in its home lending division.