Wells Fargo Scores On Earnings And Now Preparing For A Tougher Times

Wells Fargo WFC -0.05% reported earnings and sales that were above estimates, as well as solid net interest income. But, management is not fully optimistic about the prognosis, claiming that customers' financial health looks to be deteriorating.

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Wells Fargo (ticker: WFC) posted first-quarter earnings of $1.23 per share on $20.73 billion in revenue. FactSet polled analysts, who expected earnings of $1.13 per share on $20.1 billion in sales.

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Net interest revenue of $13.34 billion above Wall Street expectations of $13 billion as a consequence of the Federal Reserve's sustained interest rate rises to combat inflation. Rising interest rates allow banks to collect a larger difference between what they pay depositors and what they charge for loans.

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"We are pleased to have been in a solid position to assist the United States financial system amid the recent events that damaged the banking industry," stated CEO Charlie Scharf in a news release.

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Wells Fargo was one of the major financial institutions that made a $5 billion uninsured deposit into First Republic Bank FRC -3.60% (FRC) in March. First Republic Bank is a local lender that was put under pressure when Silicon Valley Bank and Signature Bank failed.

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During the company's results call, Scharf stated, "It's essential to remember that banks have varied operating models and that the banks that collapsed in the first quarter are extremely different from what people think of when they think of the normal regional bank. "These specific banks relied heavily on uninsured deposits and had concentrated business practices. We operate with a wider business model and more varied funding sources, as do many other banks.

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Some smaller banks experienced large withdrawals as depositors concerned about their viability transferred their funds elsewhere. It was especially problematic for banks with a large number of clients who had deposited more than the $250,000 limit set by the Federal Deposit Insurance Corp.

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In addition, the bank set aside $1.21 billion for loan losses in the first quarter. This includes an increase of $643 million in the provision for potential credit losses on commercial real estate, vehicle, and credit card loans. Last year at this time, the bank cut its provisions by $787 million.

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On the earnings call, Chief Financial Officer Michael Santomassimo stated that "while most consumers continue to be resilient, we've seen some consumer financial health trends gradually weakening from a year ago, and we've continued to take credit tightening actions to position the portfolio for a slowing economy."

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Wells Fargo's loans for the first quarter were $948.7 billion, which was less than the $958 billion Wall Street expected, but was still an increase over the same period last year when loans totaled $911.8 billion.

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Deposits of $1.36 trillion fell short of the $1.38 trillion experts' median prediction. It accelerated a decrease that had started when people used pandemic-era savings and moved their money to money-market funds because of the greater rewards offered there.

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Wells Fargo shares fell 1.1% to $39.20 on Friday after initially rising in premarket trade.

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On Friday, JPMorgan Chase JPM +7.55% (JPM) and Citigroup C +4.78% (C) both released profits.

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