Wells Fargo falls on disappointing revenue, fee revenue plummets

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Wells Fargo Stocks (NYSE: WFC) fell 4.5% to close at $46.35 on Thursday. The price drop follows a loss of revenue in the first quarter of 2022 despite upbeat earnings. The drop in royalty income mainly impacted the results.

Results in detail

Including certain one-time items, Wells Fargo reported first-quarter earnings of $0.88 per share, compared to $1.02 in the same quarter last year. The results beat analysts’ expectations of $0.80 a share. Net income fell 19.6% to $3.7 billion.

Total revenue fell 5% year-over-year to $17.6 billion and topped the consensus estimate of $17.8 billion, primarily due to lower commission revenue .

Net interest income was $9.2 billion, up 5%, while non-interest income fell 13.4% to $8.37 billion. dollars.

Net interest margin was 2.16% in the quarter, up 11 basis points. The efficiency ratio of 79% increased from 75% in the prior year quarter.

Wells Fargo’s Commercial Banking segment reported revenue of $2.3 billion, up 12% year-over-year, while Consumer Banking and Lending segment revenue fell 1% to $8.56 billion. Additionally, the Wealth and Investment Management division reported revenue of $3.76 billion, up 6%, while Corporate and Investment Banking revenue decreased 4%.

In particular, debit and credit card volumes, as well as auto loans, increased, while home loans disappointed due to lower mortgages due to higher rates. Additionally, lower client activity in capital markets and reduced investment banking revenue acted as headwinds.

Reflecting prudent expense management, non-interest expense was $13.9 billion, down 1% year-on-year due to lower personnel expenses, in part mitigated by high non-staff costs. Nevertheless, expenses were higher than expected due to operating losses related to corrective actions taken for historical customer issues.

Provision for credit losses was $787 million, compared to $1.05 billion in the same quarter last year.

Other measures

Wells Fargo reported average loans of $898 billion, up 3% from the year-ago quarter. Additionally, average deposits increased 5% to $1.5 trillion.

As of March 31, 2022, the Common Equity Tier 1 (CET1) capital ratio was 10.5%. Total loss-absorbing capacity (TLAC) as a percentage of total risk-weighted assets came in at 22.3%, above the minimum requirement of 21.5%.

During the quarter, the company repurchased 110.1 million common shares for $6 billion.

Official comments

Wells Fargo CEO Charlie Scharf said, “We are making progress in our risk and control infrastructure work and continue to note that our path forward will be uneven, but remain confident in our ability to continue to close the gaps. remaining over the next few years.

“Wells Fargo is well positioned to provide support to our customers in a slowing economy. Although we will likely see an increase in credit losses from historic lows, we should be a net beneficiary of this as we will benefit from rising rates, we have a strong capital position and our weaker expense base creates more large margins from which to invest,” Scharf added.

For 2022, management expects net interest income to increase as a percentage of mid-teens compared to 2021, driven by higher loan growth and recent forward rate curves. Non-interest expense is expected to be $51.5 billion.

The Taking of Wall Street

Following Q1 results, Goldman Sachs analyst Richard Ramsden maintained a Hold rating on the stock, but raised the price target to $56 (20.82% upside potential). against $54.

Ramsden believes the mixed results were more than offset by the guidance provided by Wells Fargo. The analyst considers that the forecasts are “much stronger than expected”.

Wells Fargo shares have risen about 11.4% over the past year, while the stock still earns a consensus strong buy rating based on 12 buys and four holds. This is in addition to an average Wells Fargo price target of $60.59, implying upside potential of 30.72% from current levels.

Investor wisdom

TipRanks’ Stock Investors tool shows that investors currently hold a very positive stance on Wells Fargo, with 7.3% of investors holding portfolios on TipRanks increasing their exposure to WFC stocks over the past 30 days. In addition, 3.4% of these individuals have increased their holdings over the past week.

The essential

Although there is geopolitical uncertainty, including the Ukraine-Russia conflict and rising inflation, a rise in interest rates should help Wells Fargo’s profitability. Despite declining mortgage lending, weak capital markets and cost pressures, the bank’s strong loan and deposit balance, as well as high analyst ratings, are factors to consider when investment in this security.

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