Wells Fargo profit beats estimates as bank frees reserve funds

[SAN FRANCISCO] Wells Fargo reported first-quarter profit ahead of Wall Street estimates on Wednesday as the bank reduced its reserves by US$1.6 billion and costs tied to its years-old sales practices scandal stabilised.

The San Francisco-based lender did not report material restructuring and remediation charges in the quarter as chief executive officer Charlie Scharf undertakes what he has said will be a "multi-year journey" to overhaul the bank.

The fourth-largest US lender said profit rose to US$4.74 billion, or US$1.05 per share, in the three months ended March, from US$653 million, or 1 penny per share, a year earlier.

Analysts on average had expected a profit of 70 cents per share, according to the IBES estimate from Refinitiv.

The loan loss reserve release added 28 cents to the earnings per share.

The slight year-earlier profit was caused by an exceptionally large provision for potential loan losses, as US banks braced for unpaid bills due to the Covid-19 pandemic shuttering the economy and pushing millions out of work.

Since then, an ultra-loose monetary policy, trillions in stimulus support and an accelerated vaccination programme have largely put the world's largest economy on a more solid footing.

Wells Fargo reported overhead, or efficiency ratio, which measures cost per dollar of revenue, of 77 per cent, from 74 per cent a year earlier.

Pre-tax, pre-provision profit fell 13 per cent to US$4.07 billion.

Changes in pre-provision profit are more important this quarter than usual because they are not impacted by different judgments banks make about future loan losses, analysts have said.

Wells Fargo has been operating under penalties from regulators since 2016 when details of a sales scandal emerged and led to the departure of two chief executives and billions of dollars in litigation and remediation charges and a Federal Reserve imposed asset cap of $1.95 trillion.

The asset limit has kept Wells Fargo from freely increasing loans and deposits to boost interest revenue and better cover costs. Other banks' balance sheets have swelled.

REUTERS