Wells Fargo beat analysts’ estimates for fourth-quarter earnings on Friday as a rebound in U.S. economic growth encouraged more customers to take out loans and the bank maintained tight control over costs.
Profit jumped 86% to $5.8 billion, or $1.38 per share, flattered by a $943 million gain from the sale of the bank’s trust and asset management units.
Overall, the core business was strong, with year-end loans issued up 1% year-on-year and 4% quarter-on-quarter.
“The changes we’ve made to the business and the continued strong economic growth outlook give us comfort in our positioning heading into 2022,” chief executive Charlie Scharf said in a statement.
Wells Fargo shares were nearly flat in premarket trading, having gained 20% year-to-date.
Loan growth in the second half, which rose 5% as government stimulus programs rolled out, was particularly strong in auto loans, the bank said.
Meanwhile, non-interest expense fell 11% to $13.2 billion, driven by lower personnel costs, as well as lower restructuring charges and operating losses, capping a year of aggressive cost cutting at the bank.
In a call with the media, Wells Chief Financial Officer Mike Santomassimo said the bank is targeting an additional $3.3 billion in cost reductions in 2022, driven by increased digital use by customers. and reducing the bank’s real estate footprint.
Scharf, which has made cost-cutting a cornerstone of its turnaround plan, has targeted $10 billion in savings a year over the long term.
The fourth largest U.S. bank has been in the regulators’ sanctions bench since 2016, when a sales practices scandal was exposed and paid billions in fines and restitution.
Wells Fargo also operated under a $1.95 trillion asset cap imposed by the Federal Reserve in 2018, which limited its ability to increase interest income by improving loan and deposit growth.
“We also remain mindful that we still have a multi-year effort to meet our regulatory requirements – with setbacks likely to continue along the way – and we continue our work to put behind us exposures related to our historical practices,” said Scharf said.
Earnings per share beat expectations
According to Refinitiv estimates, Wells Fargo earned $1.25 per share excluding items, versus an average analyst expectation of $1.13.
Total revenue rose 13% to $20.9 billion, also beating estimates of $18.9 billion.
Wells Fargo also reported an $875 million decrease in the provision for pandemic-related losses that did not materialize.
Still, net interest income fell 1% and average loan fell 3% in the quarter.
JPMorgan Chase beat analysts’ estimates on Friday, driven by a stellar performance at its investment bank, while Citigroup’s earnings were hurt by a slowdown in its commercial arm and weakness in consumer banking.
Investors focused on banks benefiting from the Federal Reserve, indicating it may raise interest rates sooner than expected due to steady inflation, although the fast-spreading variant of Omicron COVID-19 worried that the economic outlook is darkening.