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Wells Fargo earnings top estimates on $1.05 billion release of loan loss reserves
PUBLISHED WED, APR 14 20217:54 AM EDTUPDATED WED, APR 14 20219:00 AM EDT
Jesse Pound
@JESSERPOUND
Hugh Son
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WFC
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After Hours
Wells Fargo CEO Charles Scharf listens during the Milken Institute Global Conference in Beverly Hills, Calif., on April 30, 2019.
Wells Fargo CEO Charles Scharf listens during the Milken Institute Global Conference in Beverly Hills, Calif., on April 30, 2019.
Kyle Grillot | Bloomberg | Getty Images
Wells Fargo reported earnings and revenue that beat expectations for its first-quarter on Wednesday.
Here’s how the results stacked up to Wall Street estimates.
Earnings: $1.05 in earnings per share versus 70 cents a share expected, according to Refinitiv.
Revenue: $18.06 billion versus $17.5 billion expected.
Wells Fargo results were helped by a net benefit of $1.05 billion from reserve releases. Banks bulked up their credit loss reserves last year as the pandemic pulled the U.S. economy into a sharp recession, but the financial firms have started to release those reserves as the recovery takes shape.
CEO Charlie Scharf, who took over in late 2019, is running a company that is still recovering from the aftermath of its 2016 fake accounts scandal.
“Our results for the quarter, which included a $1.6 billion pre-tax reduction in the allowance for credit losses, reflected an improving U.S. economy, continued focus on our strategic priorities, and ongoing support for our customers and our communities,” Scharf said in the earnings release. “Charge-offs are at historic lows and we are making changes to improve our operations and efficiency, but low interest rates and tepid loan demand continued to be a headwind for us in the quarter.”
Wells Fargo also reported a net interest margin of 2.05% and an efficiency ratio of 77% for the quarter. Analysts were expecting 2.10% and 78%, respectively, according to FactSet.
Analysts will be keen to hear about any progress the bank is making in appeasing regulators, especially regarding a Federal Reserve order that caps the bank’s asset growth, on the earnings call on Wednesday morning.
Of the six biggest U.S. banks, Wells Fargo has the smallest Wall Street trading and investment banking operations, areas that have been on fire in recent months thanks to a red-hot IPO market and unprecedented Fed support.
Last year, Wells Fargo was the only bank among the six biggest U.S. lenders to be forced to cut its dividend after the annual Federal Reserve stress test. The firm also posted its first quarterly loss since the financial crisis and announced it was cutting billions of dollars in expenses.
Wells Fargo shares have climbed 33% this year, exceeding the 25% gain of the KBW Bank Index. The bank’s stock was down slightly in premarket trading after releasing its results.