The second-quarter results of Wells Fargo bank were boosted by a $1.6bn release of its credit loss reserves as consumers’ perform better than the bank anticipated amid the pandemic recession.
The San Francisco-based lender has reported revenue of $20.27bn versus $17.77bn expected, per Refinitiv estimates, reflecting a 10% increase compared with the same quarter one year ago.
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Wells also reported a net interest margin — a measure of how much a bank earns from the difference between what it pays on deposits and what it takes in on loans — of 2.02% for the quarter.
Analysts were expecting 2.05%, according to FactSet. Persistent low interest rates have continued to weigh on that part of the bank business.
“Headwinds of low interest rates and tepid loan demand remain”
CEO Charlie Scharf said in a press release that demand for the bank’s loans remains somewhat muted despite the economic recovery.
“Wells Fargo benefited from the continued economic recovery, strong markets that helped drive gains in our affiliated venture capital businesses, and our progress on improving efficiency, but the headwinds of low interest rates and tepid loan demand remained,” Scharf said in the earnings release.
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By GlobalData“Our top priority continues to be building an appropriate risk and control infrastructure for a company of our size and complexity and we continue to invest in additional resources and devote significant management attention to this work.”
Scharf, who took over in late 2019, is laser-focused on improving his company’s costs and public image after a high-profile fake accounts scandal. The Federal Reserve has capped the bank’s asset growth and compelled the bank’s new executive to focus on expenses.
The bank reported an efficiency ratio of 66% compared with the FactSet estimate of 76.1%, indicating that its operating expenses as a proportion to its revenues had improved from 80% in the June quarter of 2020.
About shutting down personal lines of credit and discontinuing the product
The financial update from the bank came nearly one week after media reports that it is shutting down all existing personal lines of credit in coming weeks and has stopped offering the product.
Wells Fargo’s credit lines had let customers borrow $3,000 to $100,000. The bank billed the lines as a means to consolidate higher-interest credit card debt, pay for home renovations or avoid overdraft fees on linked checking accounts.
Wells said in a letter to customers that the move will allow it to focus on credit cards and personal loans.
Though the move did anger some customers, Wells is otherwise posting a comeback in 2021 amid an economic turnaround in the US thanks to the resumption of normal business activity.
