Wells Fargo Beats expectations but sets aside money for loan losses

Higher interest rates and rising loan balances helped Wells Fargo top analysts’ expectations for the second quarter, even as it socked away more money as a buffer against bad loans.

On Friday, the bank said it earned $4.9 billion in the quarter that ended June 30, up 57% from a year ago. Its revenue rose to $20.5 billion, up 20%.

Wells Fargo is one of the nation’s largest mortgage lenders, and analysts watch its results for signs of economic stress. The bank’s soured loans in its commercial business grew, but its consumer business held fairly steady, with a slight rise in credit-card defaults offset by a drop in losses on auto loans.

The U.S. economy “continues to perform better than many had expected,” said Charles W. Scharf, the bank’s chief executive, but “there will likely be continued economic slowing.” The bank’s shares rose 4% in premarket trading.

Commercial real estate, especially loans on office space, are a pain point, and the bank set aside nearly $1 billion more for losses. Its deposits – a measure that has been under scrutiny as customers seek higher returns on savings – dropped slightly from last quarter.

Commercial deposits have stabilized, while on the consumer side, “what’s driving the decline is, largely, people spending their money,” said Michael P. Santomassimo, the bank’s CFO.

Wells Fargo is still operating under growth restrictions imposed in 2018 by the Federal Reserve in response to the bank’s prominent misdeeds, including creating sham customer accounts and mishandling customers car and home loan payments. The bank expects that penalty to remain in place at least through next year.

Like the other big banks, Wells Fargo keeps bracing for a recession – but is not seeing one just yet. “Overall, I think things are doing quite well,” Santomassimo said, thanks in part to “a really strong employment picture.”

More big banks report quarterly earnings next week, including Bank of America, Morgan Stanley and Goldman Sachs.

This article originally appeared in The New York Times.