Wells Fargo reports profit decline due to bad loans in Q2 2022

Wells Fargo said on Friday that its second-quarter earnings fell 48% from the same period last year as a result of the bank setting aside money for bad loans and being hurt by decreases in its equity holdings.

Following the announcement that its second-quarter net income fell to $3.12 billion, or 74 cents per share, from $6.04 billion, or $1.38 per share, in the year-ago quarter, Wells Fargo & Co. WFC, -0.84 percent shares dropped 3.5 percent in premarket trades on Friday. Earnings in the most recent quarter were 82 cents per share, excluding other items and an impairment of 8 cents per share for its venture capital business. Revenue for the second quarter decreased from $20.27 billion to $17.02 billion.

According to FactSet forecasts, analysts predicted Wells Fargo would generate $17.48 billion in sales and earn 80 cents per share.

Going forward, the environment of rising interest rates should continue to favor the bank's performance, with increase in net interest income anticipated to more than balance any additional near-term impact on noninterest revenue, CEO Charlie Scharf said in a statement.

"We do expect credit losses to increase from these incredibly low levels, but we have yet to see any meaningful deterioration in either our consumer or commercial portfolios."

Shares of Wells Fargo have dropped 19.3% in 2022.

Investors and analysts have been keenly examining bank statistics for any indications that the American economy is under duress. While all sorts of borrowers have kept up with their loan payments, there are signs that a recession might be on the horizon brought on by rising interest rates and widespread drops in asset prices.

Wells Fargo claimed that "market conditions" compelled it to report a loss of $576 million on equity securities related to its venture capital division in the second quarter. A dramatic contrast to a year earlier, when the bank profited from the release of reserves as borrowers paid off their debts, the bank also had a $580 million allowance for credit losses in the quarter.

On Thursday, larger competitor JPMorgan Chase reported earnings that fell short of forecasts as it increased reserves for bad loans, while Morgan Stanley disappointed due to a slower-than-anticipated decline in investment banking fees.

About Wells Fargo

With nearly $1.9 trillion in assets, Wells Fargo & Company (NYSE: WFC) is a market-leading provider of middle market banking in the United States, proudly serving more than 10% of small companies and one in three households in the country. Through its four reportable operational segments—Consumer Banking and Lending, Commercial Banking, Corporate and Investing Banking, and Wealth & Investment Management—Wells Fargo offers a wide range of banking, investment, and mortgage products and services, as well as consumer and business finance. By encouraging the development of small businesses, a low-carbon economy, and affordable housing in the areas it serves, the firm aims to have a positive social influence there.