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America's banking basketcase Wells Fargo, reported mixed Q3 earnings before the bell on Thursday after JPMorgan and before Goldman Sachs. $WFC continues to be in the news for all the wrong reason. $WFC saw a $1.7-billion decline in allowance for credit losses

Wells Fargo Robbery

Wells Fargo & Co NYSE: WFC Report Earnings Before Open Thursday

$1.17 Beat $1.00 EPS and $18.80 Billion Beat $18.20 Billion Forecast in Revenue 

Earnings

  • Q3 2021 earnings release: before the opening bell; conference call: 11:30 a.m.

Wells Fargo’s third-quarter 2021 earnings of $1.17 per share, an improvement of 67% year over year over a projected EPS of $1.00. Total quarterly revenues were $18.8 billion beat projected revenue of $18.2 billion. The results included the impact of a $1.7-billion decline in allowance for credit losses backed by an improving economic environment and lower net charge-offs, offset by a $250-million impact of an operating loss related to the September 2021 Office of the Comptroller of the Currency (OCC) enforcement action.

Banks shored up their credit loss reserves last year as the pandemic pulled the U.S. economy into a sharp recession, and the financial firms  releasing those reserves as the recovery takes shape have helped earnings.

Wells Fargo's still has a continuing regulatory cap on the bank's assets imposed by the Fed from previous scandals. Given that reputational risk hangs over the the bank after a series of scandals that included creating fake customer accounts.

 Big Banks Kick Off Third Quarter 2021 Earnings Season

The bank rally has been fueled by expectations for the economy reopening and infrastructure spending.  The new surge in home prices has also buoyed optimism for the mortgage business and banks profits thereto.

 

Wells Fargo & Co NYSE: WFC

Market Reaction WFC Pre-market 45.15 -0.90 (1.95%)

Highlights

Highlights

  • Non-interest income at Wells Fargo came in at $9.9 billion, marginally down year over year.
  • Higher card, deposit-related and investment banking fees, investment advisory, and other asset-based fees were partially offset by lower mortgage banking revenues, fall in gains on the sale of securities along with reduced Markets revenues in Corporate and Investment Banking.
  • As of Sep 30, 2021, average loans were $854 billion, marginally down sequentially.
  • Average deposits came in at $1.45 trillion, up 1% from the prior quarter.
  • Non-interest expense was $13.3 billion for the third quarter, down 13% year over year.
  • Lower operating losses, restructuring charges, occupancy expenses, salaries expense, and consultant and contractor spend were partly muted by higher incentive and revenue-related compensations.
  • The company’s efficiency ratio of 71% was below 79% recorded in the year-ago quarter. A fall in efficiency ratio indicates a rise in profitability

 Wells Fargo’s credit quality metrics were robust during the September-end quarter.

  • The provision for credit losses was a benefit of $1.4 billion as of Sep 30, 2021 against an expense of $769 million in the prior-year quarter.
  • Non-performing assets decreased to $7.2 billion for the third quarter from $8.2 billion reported in the year-earlier period. Net charge-offs were $257 million or 0.12% of average loans for the reported quarter, down 65% from $731 million (0.29%) a year ago.
  • Provision for credit losses was a net benefit of around $1.4 billion against a provision of $769 million reported in the year-ago quarter.

Capital Position

  • Wells Fargo maintained a sturdy capital position. Its Tier 1 common equity under Basel III (fully phased-in) increased to $141.6 billion from $134.9 billion witnessed in the prior-year quarter.
  • The Tier 1 common equity to total risk-weighted assets ratio was estimated at 11.6 % under Basel III (fully phased-in) as of Sep 30, 2021, up from 11.4% in the corresponding period of 2020.
  • Return on assets was 1.04%, up from the prior-year quarter’s 0.66%.
  • Return on equity was 11.1%, comparing favorably with the year-ago quarter’s 7.2%.

Repurchases and Dividends

  • Wells Fargo repurchased 114.2 million shares or $5.3 billion in the third quarter
  • Increased the common stock dividend to 20 cents per share from 10 cents in the prior quarter.

Stock Buybacks

Wells Fargo and several other big U.S. banks including Citigroup and JP Morgan were given permission to resume share buybacks in the first quarter of 2021 by the Federal Reserve. The Fed conclused that certain banks capital buffers are sufficient to withstand potentially hundreds of billions of dollars in loan losses related to the Covid-19 pandemic and economic downturn.

Wells Fargo’s board approved an increase in the bank's authority to repurchase common stock by an additional 500 million shares in Q1, bringing the total authorized amount to 667 million common shares. 

Wells Fargo is still trying to recover from the fake account scandal surrounding its sales practices, in which employees in its consumer banking division created fake accounts amid a high-pressure sales environment. More issues surrounding the bank's practices continue to surface. Wells Fargo in February 2020 agreed to pay $3 billion to settle criminal charges and a civil action stemming from its widespread mistreatment of customers in its community bank over a 14-year period.

Source: WFC

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