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Wells Fargo Beats Profit Estimates but Misses on Revenue. The Stock Is Falling.

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Wells Fargo

stock was falling in premarket trading Thursday after the bank reported mixed first-quarter earnings.

Wells Fargo (ticker: WF


C

) reported an adjusted profit of 88 cents a share, beating forecasts for 81 cents a share, on revenue of $17.6 billion, below expectations for $17.8 billion.

Wells Fargo stock was down 3.2% to $46.98 in premarket trading. The stock has gained 1.2% this year, and 16% over the last 12 months.

The bank repurchased 110.1 million shares, of $6 billion, of common stock in the first quarter.

Net interest income at the bank increased 5% in the first quarter due to lower mortgage-backed securities premium amortization, a decrease in long-term debt, and higher loan balances. Noninterest income, however, fell 14%, driven by lower mortgage banking income, the bank said.

Wall Street entered the earnings season with the begrudging acceptance that that earnings will be weaker than a year ago, given that 2021’s earnings were so strong.


JPMorgan Chase

(


JPM

) was the first to confirm the suspicion on Wednesday, posting a 42% drop in profit.

Wells Fargo continued the trend, with revenue falling 5% from the same period last year. The decline was led by revenue decreases in the consumer banking and lending segment, corporate and investment banking, and corporate segment.

“Our internal indicators continue to point towards the strength of our customers’ financial position, but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation and this will certainly reduce economic growth,” said Wells Fargo CEO Charlie Scharf. “In addition, the war in Ukraine adds additional risk to the downside.”

JPMorgan said on Wednesday it marked $524 million in losses due to volatile markets and the broader impact of Russia’s invasion. Earlier this month, Chief Executive Jamie Dimon said the Ukraine crisis could lead to $1 billion in losses.

Wells Fargo could be one of the biggest beneficiaries of the Fed’s decision to hike interest rates, as it could boost interest income. The bank’s commercial banking segment revenue increased 12% year over year, with middle market up 8% due to higher deposit and loan balances, as well as higher interest rates.

“While we will likely see an increase in credit losses from historical lows, we should be a net beneficiary as we will benefit from rising rates, we have a strong capital position, and our lower expense base creates greater margins from which to invest,” Scharf added. 


Citigroup

(C),


Goldman Sachs

(


GS

), and


Morgan Stanley

(


MS

) also report earnings on Thursday.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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