Wells Fargo profit up as credit quality improves

By @ibtimes on

Wells Fargo & Co , the fourth-largest U.S. bank, posted higher quarterly profit, but its results were shaped by the same trends as most of its rivals, which is unusual for a bank known for outsmarting competitors.

Earnings rose 50.5 percent, with gains were driven mainly by setting aside less money to cover bad loans. The bank's loan book shrank as outstanding loans to consumers declined and loans to companies did not grow enough to make up for it.

Credit quality improved for the bank, as it did for rivals, but investors are less clear about where future profit growth will come from.

The credit situation has been improving, said Ben Wallace, analyst at Grimes & Co, with $1 billion under management, but added, The real issue comes back to ... getting people out making loans and getting the economy growing.

Wells Fargo cut the amount of money it set aside for bad loans to $2.21 billion from $5.33 billion a year earlier. It also released $1 billion, pre-tax, from its reserves.

Other major banks, including JPMorgan Chase & Co and Bank of America Corp , have also boosted profit by setting aside less money to cover bad loans. Analysts cutting loan loss provisions can provide near-term earnings boosts, but only loan growth can lift profits in the longer term.

Wells Fargo's first-quarter net income for common stockholders rose to $3.57 billion, or 67 cents per share, from $2.37 billion, or 45 cents per share, a year earlier. Revenue fell 5 percent to $20.33 billion.

Analysts, on average, had expected earnings of 66 cents per share, according to Thomson Reuters I/B/E/S.

Consumers continue to be hesitant to borrow, yet our robust deposit growth reflects the strong loyalty and market share we enjoy among customers, Chief Executive Officer John Stumpf said in a statement.

Wells Fargo shares fell 4.5 percent to $28.71 in morning trading.

(Reporting by Philipp Gollner in San Francisco and Clare Baldwin in New York; editing by John Wallace)

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