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Oct 14, 2022

Wells Fargo earnings marred by US$2B regulatory charge

Wells Fargo Recommends Broad Basket of Commodities

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Wells Fargo & Co. set aside an additional US$2 billion to resolve a variety of legacy regulatory and legal woes as Chief Executive Officer Charlie Scharf continues wrestling with the costly fallout from scandals he was hired to resolve.

The charge hampered a third quarter that was better than expected on some metrics. Net interest income, for example, rose 36 per cent to US$12.1 billion in the three months ended Sept. 30, the San Francisco-based bank said Friday in a statement. That’s the most since 2019 and better than the 31 per cent average estimate of analysts surveyed by Bloomberg.  

“Our top priority remains strengthening our risk and control infrastructure, which includes addressing open historical issues and issues that are identified as we advance this work,” Scharf, 57, said in the statement. “We remain at risk of setbacks as we work to complete the work and put these issues behind us.”

The results, and those also reported Friday by JPMorgan Chase & Co., provide early evidence that US lenders are getting a big boost from higher interest rates. Net interest margin -- the difference between what banks earn on loans and what they pay for deposits -- expanded to 2.83 per cent at Wells Fargo, up from 2.39 per cent in the preceding quarter.  

Shares of Wells Fargo rose 5.2 per cent to US$44.58 at 9:40 a.m. in New York, paring their decline for the year to 7 per cent.

Investors also are looking for more economic insights from industry executives heading into year-end. In one signal of continued caution, Wells Fargo set aside US$784 million in provisions for potential credit losses, more than the US$611 million analysts had expected.

Wells Fargo is monitoring the effects of high inflation and rising rates, as well as geopolitical risks, but remains “bullish” on its opportunities because of higher operating margins and a strong capital position, Scharf said in the statement. The bank expects delinquencies and credit losses to rise, though the timing of those increases is unclear, he said.

“We will continue to prudently manage our capital levels to be appropriately prepared for a range of scenarios, including a slowing economy and market volatility,” Scharf said.

Net income fell 31 per cent to US$3.53 billion, or 85 cents a share. The one-time regulatory charge cut earnings by 45 cents a share. Analysts had expected net income of US$1.09 a share.