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Wells Fargo Profit Declines in Q2

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Wells Fargo

Wells Fargo Profit Declines in Q2

July 15 2015, 07.29am GMT


An increase in the provision for bad loans and rising costs resulted in the second successive quarterly price drop as Wells Fargo and Co. reported on second quarter performance.

The report from the largest U.S. mortgage lender in many respects represents a holding operation in difficult circumstances rather than a record of achievements.

The company increased its provision for credit losses by 38.2% to $300 million while non-interest expenses showed an increase of $12.47 million, with these figures having a significant impact on net income.

The bank reported a second quarter profit of $5.72 billion, down from the $5.73 billion reported for the same period last year.

The earnings per share of $1.03 met analysts’ forecasts and were up on the previous figure of $1.01 a year ago. 

The results, to a very large degree, are indicative of the problems facing big banks in the current economic climate. The increased provision for bad debt means that mortgage losses from that source no longer concern the bank to the same degree as in the past.

The current situation has resulted in a greater challenge being that of keeping costs under control while facing the challenge of low interest rates.

Meanwhile, Wells Fargo reported a decline in the interest margin from 3.15% reported a year ago, to the figure of 2.97% reported for the second quarter of 2015. This margin represents the difference between the interest the bank pays on deposits and the interest it recovers on loans.

A key measure of the cost reduction efforts is the degree of cost effectiveness the company achieved and this ratio rose to 58.5% from 57.9% the previous year.

Wells Fargo Chief Executive and Chairman, John Stumpf, said in a statement that, “Wells Fargo’s second quarter results reflected continued strength in the fundamental drivers of long term growth. Compared to a year ago, we grew loans, deposits and capital, and our balance sheet remained strong.”

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