Wells Fargo rev­enue gain sur­prises in­vestors

Drop in de­posits and loans in­di­cates bank still strug­gling to bounce back

The Mercury News - - Business + Technology - By Han­nah Le­vitt Bloomberg News

Wells Fargo hasn’t yet fixed all of its prob­lems, but at least it stopped its rev­enue slump.

The bank posted a sur­prise in­crease in rev­enue, with the fig­ure ris­ing to $21.9 bil­lion in the third quar­ter, af­ter an­a­lysts ex­pected a slight de­cline. The bank ben­e­fited from ris­ing in­ter­est rates and saw growth in con­sumer-lend­ing orig­i­na­tions in ar­eas such as auto and per­sonal loans, it said in a state­ment Fri­day.

It’s the first time this year rev­enue has grown and may in­di­cate that Chief Ex­ec­u­tive Of­fi­cer Tim Sloan’s ef­forts to turn Wells Fargo around are pay­ing off. The lender has posted muted re­sults in the wake of a se­ries of con­sumer scan­dals that erupted in 2016 when the bank dis­closed it may have opened mil­lions of ac­counts on be­half of cus­tomers who didn’t want them, and the Fed­eral Re­serve has pro­hib­ited Wells Fargo from in­creas­ing as­sets un­til mis­steps are fixed to the reg­u­la­tor’s sat­is­fac­tion.

Wells Fargo “has been able to put a num­ber of the scan­dals it has been plagued by be­hind it,” Oc­tavio Marenzi, CEO of cap­i­tal-mar­kets man­age­ment con­sul­tancy Opi­mas, said in an email. Third-quar­ter earn­ings “look solid over­all — good in­ter­est mar­gins, and low charge-offs. A cloud on the hori­zon is the bank’s slip in de­posits, which have de­clined by 3 per­cent. So far, the bank has been able to keep net-in­ter­est in­come in­creas­ing.”

Shares of San Fran­cisco-based Wells Fargo climbed to $52.20 at 9:26 a.m. in early New York trad­ing. They closed at $51.44 on Thurs­day and have dropped 15 per­cent this year, com­pared with a 5.1 per­cent de­cline in the KBW Bank In­dex.

“We saw pos­i­tive busi­ness trends in the third quar­ter, in­clud­ing growth in pri­mary con­sumer check­ing cus­tomers, in­creased debit and credit card us­age, and higher year-overyear loan orig­i­na­tions in auto, small busi­ness, home eq­uity and per­sonal loans and lines,” Chief Fi­nan­cial Of­fi­cer John Shrews­berry said in the state­ment.

Still, net in­come rose less than an­a­lysts ex­pected. It climbed to $6 bil­lion, or

$1.13 a share, miss­ing the $1.18-a-share av­er­age es­ti­mate of 28 an­a­lysts in a Bloomberg sur­vey.

Av­er­age de­posits at Wells Fargo fell to $1.3 tril­lion, down $40 bil­lion from a

year ear­lier, as “con­sumers con­tin­ued to move ex­cess liq­uid­ity to higher-rate al­ter­na­tives,” the bank said. To­tal av­er­age loans fell to $939.5 bil­lion, down $12.9 bil­lion, or 1 per­cent, the low­est level in more than two years.

The drop shows that Wells Fargo is still strug­gling to bounce back from

the con­sumer scan­dals it has been work­ing through over the past two years. By com­par­i­son, JPMor­gan Chase & Co. saw an in­crease in both cat­e­gories. At a Septem­ber in­vestor con­fer­ence, Shrews­berry at­trib­uted the drop in loans to com­pe­ti­tion across con­sumer and com­mer­cial cat­e­gories.

Wells Fargo’s pro­vi­sion ex­pense and net char­ge­offs both fell from a year ear­lier, as they did at JPMor­gan. Im­prove­ment of the met­rics across the big­gest con­sumer banks sug­gests there is still life to the cur­rent credit cy­cle, even as many across the fi­nan­cial sys­tem ques­tion how long the ex­pan­sion can last.

CHRISTO­PHER DILTS — BLOOMBERG NEWS

Net in­come for Wells Fargo failed to meet ex­pec­ta­tions.

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