Wells Fargo posted higher-than-expected fourth-quarter expenses, even after the firm warned of a hefty loss tied to a regulatory sanction last month.
The firm spent $16.2 billion in the last three months of the year, according to a statement Friday, exceeding analyst estimates. That included $3.3 billion in operating losses after Wells Fargo said last month it would book costs for a settlement with the Consumer Financial Protection Bureau and other legal issues. The shares fell 3.9% in early trading in New York.
The firm pulled in a record $13.4 billion in net interest income in the quarter, surpassing analyst expectations. The 45% rise from a year earlier shows the dramatic impact of the Federal Reserve's interest rate hikes on Wells Fargo's bottom line. Still, net income tumbled 50% to $2.9 billion, tied to the multi-billion dollar settlement.
"Though the quarter was significantly impacted by previously disclosed operating losses, our underlying performance reflected the progress we are making to improve returns," Chief Executive Officer Charlie Scharf said in the statement. "Rising interest rates drove strong net interest income growth, credit losses have continued to increase slowly but credit quality remained strong, and we continue to make progress on our efficiency initiatives."
Results included a $1 billion hit on equity securities, mostly in the firm's affiliated venture capital business. Chief Financial Officer Mike Santomassimo said on a call with journalists that the loss was tied to enterprise software-related companies in the portfolio, but that the affiliate is "still a great business."
Wells Fargo set aside more than expected for potentially soured loans, indicating a worsening economic outlook at one of the biggest US lenders even as it reaps the benefits from higher rates. The firm took a $957 million provision for credit losses for the quarter, more than analysts expected.
The bank also provided an update on its so-called "reasonably possible losses" in excess of what it's already set aside for legal issues, typically reserved for a regulatory filing after earnings. The high end of the range as of Dec. 31 is about $1.4 billion, down from $3.7 billion at the end of the third quarter.
Santomassimo said on a call with journalists that Wells Fargo currently expects to resume buybacks in the first quarter, after pausing them last year.
The results at Wells Fargo and its peers reporting Friday provide a glimpse into a US economy confronting rising borrowing costs and still-persistent inflation. Investors are eager for executives' outlooks for the year ahead, from their take on the timing and depth of a recession and health of consumers to their expectations for job cuts or hiring freezes that are seeping into Wall Street.
Wells Fargo reached a $3.7 billion settlement with the CFPB late last year, which included a $1.7 billion fine, over allegations that it mistreated millions of customers, causing some to lose their cars or homes. That was just the latest in a years-long series of costly penalties for the San Francisco-based bank, which Scharf was brought in to clean up in late 2019. The firm remains under a Federal Reserve-imposed asset cap limiting it to its size at the end of 2017.
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