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Wells Fargo & Co. beat analysts’ expectations for third-quarter profit, another positive sign for Chief Executive Officer Charlie Scharf’s turnaround efforts, but expenses were higher than anticipated and loans fell.
The bank reported net income rose to US$5.1 billion, padded by a US$1.7 billion reserve release, according to a statement Thursday. Still, the firm took a US$250 million charge related to its latest regulatory order, which drove costs higher than analysts expected.
The mixed results are a reminder that challenges remain for Scharf, who took the helm of Wells Fargo in 2019. The bank has been cutting jobs and slashing costs as Scharf seeks to boost the firm’s profitability after years of scandals. Non-interest expenses fell 12.6 per cent, though analysts had expected a 14 per cent drop. Headcount fell to 253,871, from 259,196 at the end of June.
“The significant deficiencies that existed when I arrived must remain our top priority,” Scharf said in the statement. “We are a different company today and the operational and cultural changes we’ve made are enabling us to execute with significantly greater discipline than we have in the past.”
The biggest U.S. banks have been struggling with weak loan growth as consumers and businesses, bolstered by massive government stimulus programs during the pandemic, refrained from borrowing. The rise of the delta variant has also delayed a return to normal and slowed economic activity. Average loans fell 8 per cent, Wells Fargo said.
Shares of Wells Fargo rose 1.1 per cent to US$46.57 in early trading in New York.
During the quarter, Wells Fargo was hit with a new regulatory action and a US$250 million fine over its lack of progress addressing long-standing problems -- a topic that is sure to come up on the bank’s analyst call. The firm is also still under a Federal Reserve-imposed asset cap, which limits its balance sheet.
Also in Wells Fargo’s results:
- Loans dropped 14 per cent in the firm’s consumer unit and 12 per cent in commercial banking compared to the prior year; net interest income, a measure of how much the bank profits from lending, fell 5 per cent
- Period-end assets were US$1.95 trillion, up from US$1.92 trillion
- The bank reported revenue of US$18.8 billion, exceeding analysts’ expectations but lower than a year ago
- Net charge-offs fell 65 per cent in the quarter, a sign of a strengthening U.S. economy