Wells Fargo’s $2 billion loss, and other takeaways from big banks’ earnings calls
.jpg "Charlotte’s largest banks — Wells Fargo, Bank of America and Truist — reported earnings over the past week, as investors watched the quarterly reports for signs of an oncoming recession.")
Charlotte’s three largest banks — Bank of America, Wells Fargo and Truist — all released third-quarter earnings in the past week, as investors watched the latest round of corporate reports for signs of a souring economy.
Higher interest rates helped boost revenue at all three banks, although each reported a drop in net income from this time last year.
Here are key takeaways for each of the banks from this quarter’s earnings week:
Wells Fargo’s regulatory woes continue
Wells Fargo’s net income fell 31% compared to the third quarter last year to $3.5 billion, drained by a $2 billion loss the bank said was related to “litigation, customer remediation and regulatory matters”.
It’s not the first time the bank’s regulatory struggles have come with a hefty price tag. Wells Fargo was hit with a $250 million fine from the Office of the Comptroller of the Currency for failing to properly compensate customers affected by the bank’s prior “unsafe or unsound” home lending practices.
Wells Fargo also saw a falloff in its mortgage business, reporting a 52% drop in home lending earnings from the year prior. The bank is one of the country’s largest home loan providers, but mortgage lenders across the country have struggled since a hike in mortgage rates caused far fewer borrowers to seek out loans.
The bank has continued to draw the ire of lawmakers and regulators in 2022. It was criticized by senators in March for a Bloomberg investigation that found it denied mortgage refinancing applications for Black borrowers at higher rates.
Wells Fargo is headquartered in San Francisco but has its largest employment base in Charlotte, with more than 27,000 workers here.
Merger expenses still a drag on Truist earnings
Truist reported $1.5 billion in net income for the third quarter, down 5% from the previous year.
That was dinged by $152 million in merger-related expenses. It’s a smaller charge than last quarter, when the expenses totaled $238 million.
SunTrust and BB&T merged to form Charlotte-based Truist in 2019, but the bank just made the external switch to its new name and branding early this year. CEO Bill Rogers emphasized that the bank was shifting its focus from merger integration toward building profits.
He added that, although the bank saw mixed financial results, this quarter, the bank is “on the right path.”
“Progress is real and palpable,” he told investors.
Truist also closed on its acquisition of BenefitMall, a Dallas-based employee benefits insurance broker, in September. Executives didn’t disclose the purchase price on the earnings call. The bank is acquiring a second insurance business that’s expected to close before the end of the year.
The Tuesday earnings call was Chief Financial Officer Mike Maguire’s first in the role. He replaced Daryl Bible, who is retiring, last month.
Banks guard against possible recession
As a 2023 recession appears more likely, Charlotte’s banks are setting aside additional cash to cover potential losses.
Wells Fargo increased its reserves for potential loan losses — an amount of money banks set aside in case loans go bad — by $204 million from the prior quarter. Truist increased that amount by $63 million.
Bank of America set aside an additional $378 million from the second quarter, although CFO Alastair Borthwick said the added reserves were partially because of larger loan volumes. The Charlotte-based bank reported net income of $7.1 billion, down 8% from the same quarter the prior year.
But they’re not seeing signs of a downturn yet
In a recent Wall Street Journal survey, economists said there was a 63% chance of a recession in the next year. But Charlotte banks said they don’t see signs of that on their balance sheet yet.
In a statement, Wells Fargo CEO Charlie Scharf said “both consumers and business customers remain in a strong financial condition.”
Truist believes the economy is “still generally healthy,” CEO Bill Rogers said, although he acknowledged that persistent inflation, geopolitical tensions and rising interest rates were all building some uncertainty leading into the new year.
Bank of America CEO Brian Moynihan said analysts might wonder if “talk of inflation and recession” would result in slower consumer spending for the quarter. “We just don’t see it at Bank of America,” he said.
Borthwick added that the bank’s customers also hold more deposits than pre-pandemic levels, and are paying off loans at faster-than-normal rates.
Increasing hiring, decreasing branches at Bank of America
Bank of America added 3,500 employees this quarter, Borthwick told investors, in hiring employees across various lines of business. That comes as a few other banks have made job cuts as some parts of the economy start to slow.
Bank of America also closed hundreds of branches across the country over the last year. In its earnings presentation, the bank said it was down 283 branches to a total of 3,932 locations. That included a handful of closures around Charlotte.
On a call with investors, Moynihan said the bank was investing more in remaining branches, adding staff and renovating locations.
This story was originally published October 18, 2022 at 12:29 PM.
