(Reuters) – Wells Fargo & Co (WFC.N) mentioned on Friday its loan book shrank and it raked in much less charge income than a 12 months in the past, elements that contributed to lower-than-expected quarterly profit and despatched its shares down practically 2 p.c.
The financial institution mentioned a lot of the lending decline needed to do with strikes to keep away from riskier loans, however the second-quarter outcomes ignited fears about lingering reputational injury from Wells Fargo’s phony accounts scandal and different buyer abuses.
The whole common loan steadiness for the financial institution shrank 1 p.c within the quarter from a 12 months earlier as its shopper loan book fell by 2 p.c and industrial actual property lending slowed.
Wells Fargo has been operating down monetary crisis-era mortgage portfolios and dialing again lending in different companies like autos the place it sees an excessive amount of threat. Its most up-to-date pullback is in industrial actual property lending.
“We are seeing a deterioration in underwriting standards. It’s been occurring for some time,” Chief Executive Tim Sloan mentioned when requested for extra shade on the industrial actual property sector.
Analyst pressed Wells Fargo executives on a name to debate the outcomes about after they may count on to see a turning level. The financial institution may quickly ramp up auto lending once more, the executives mentioned, with out giving a particular timeframe.
“I would say that we’re happy that it was sort of stabilized and we’re now viewing the origination path is growing,” Chief Financial Officer John Shrewsberry mentioned.
The mortgage enterprise weighed on the revenue the financial institution makes from charges, which fell eight p.c within the quarter to $9 billion.
Intensifying worth competitors for mortgages damage margins and borrower prepayments minimize into servicing charges. The financial institution additionally mentioned a program that helps clients keep away from overdraft costs dented charge revenue.
Even with loan balances falling, the financial institution’s internet curiosity revenue rose 1 p.c, helped by greater rates of interest.
JPMorgan Chase’s (JPM.N) common core loans rose 7 p.c,
One consequence of the gradual loan and deposit progress is that the financial institution doesn’t have to fret about bumping up in opposition to a regulator-imposed cap on its steadiness sheet.
The Federal Reserve has ordered Wells Fargo to maintain property under $1.95 trillion till the financial institution’s governance and controls enhance.
Total non-interest bills rose three p.c to $14 billion, with the financial institution noting that advertising prices from a rebranding effort to assist restore injury to its popularity added to prices.
The financial institution mentioned it additionally took a $619 million working loss hit within the quarter for compensating buyer harmed by international alternate, mortgage, auto lending and wealth administration points.
The lender’s bills per greenback of income have remained stubbornly excessive after the phony accounts scandal erupted in 2016. Wells Fargo has vowed to chop prices by shrinking its department community, overhauling inside departments, combining sure enterprise areas and different measures.
Net revenue relevant to frequent inventory fell to $four.79 billion, or 98 cents per share, within the second quarter, from $5.45 billion, or $1.08 per share a 12 months in the past.
On an adjusted foundation, earnings have been $1.08 per share, excluding a 10-cent hit from an revenue tax expense, lacking analysts’ estimates of $1.12 per share, in accordance with Thomson Reuters I/B/E/S.
Reporting by Aparajita Saxena in Bengaluru; Writing by Meredith Mazzilli; Editing by Bernard Orr