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Wells Fargo Misses on Revenue as Costs Pressure CEO; Shares Fall

Wells Fargo Misses on Revenue as Costs Pressure CEO; Shares Fall

(Bloomberg) — Wells Fargo & Co. missed analysts’ expectations on first-quarter revenue and expenses as Chief Executive Officer Charlie Scharf continues to face challenges turning around the bank after years of scandals.

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Non-interest expenses were $13.9 billion in the first three months of the year, higher than what analysts had forecast, according to a statement Thursday. Revenue declined, bringing net income down to $3.7 billion. Scharf warned that rising inflation and the war in Ukraine could slow the economy.

“Our internal indicators continue to point towards the strength of our customers’ financial position, but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation and this will certainly reduce economic growth,” Scharf said in the statement. “In addition, the war in Ukraine adds additional risk.”

Reducing costs has been a key part of Scharf’s plan to boost profitability at the bank. Investors are also watching closely for signs of loan growth, which has been absent for much of the pandemic as massive government stimulus programs kept consumers and businesses flush with cash and without the need to borrow. As policymakers raise interest rates, the biggest U.S. firms stand to benefit from a boost in revenue from loans.

Net interest income rose for the first time since 2019, a sign that rising rates and more loan demand is starting to bolster the bank. Still, the gains fell short of expectations. Period-end loans rose 6% from a year earlier, with consumer loans down 4% — though credit card, auto and personal lending rose — and commercial loans increased 10%.

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Shares of Wells Fargo, which were up 1.17% this year as of Wednesday’s close, declined in early trading in New York.

The higher-than-expected expenses were driven by operating losses tied to customer remediation for historical matters, according to the statement. Headcount fell to 246,577 from 249,435 at the end of December. Trimming the firm’s workforce has been among Scharf’s cost-cutting initiatives, and until last year Wells Fargo had the most employees of any U.S. bank.

The San Francisco-based firm also remains under a costly Federal Reserve-imposed asset cap limiting its size to its level at the end of 2017. Period-end assets were $1.94 trillion, down 1% from a year ago.

The firm reported a $1.1 billion release in its allowance for credit losses, boosting net income.

(Updates with additional details on loans, headcount and assets starting in fifth paragraph.)

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