Bloomberg
Wells Fargo & Co.’s average loans tumbled in the second quarter as consumers and businesses, buoyed by pandemic stimulus programs, refrained from more borrowing.
The average balance of the bank’s lending book dropped 12% to $854.7 billion, according to a statement. The result mirrored a similar decline at Bank of America Corp, which said earlier that loans and leases in its consumer-banking unit also fell 12%.
Unprecedented levels of US government aid have left consumer and corporate balance sheets in healthy shape, meaning more loans aren’t a top priority. Executives across the industry have predicted a wave of spending will drive loan growth, but that hasn’t yet materialised.
Still, the company beat analysts’ expectations for revenue, expenses and net income, in a sign that Chief Executive Officer Charlie Scharf’s turnaround is taking hold. The firm also benefited from a $1.6 billion reserve release, $1.3 billion of which fell to the bottom line, boosting net income to $6 billion. Analysts had expected $4.4 billion.
“We believe we are doing what’s necessary to improve the underlying earnings power of the company,†Scharf said in the statement. “The headwinds of low interest rates and tepid loan demand remained.â€
Scharf, who took over atop the nation’s fourth-largest lender almost two years ago, has embarked on a series of cost-cutting initiatives as part of his effort to boost profitability after years of scandals. Non-interest expenses dropped 8.3% to $13.3 billion in the second quarter, while analysts were
expecting a 7.3% decline.
Headcount falls to 259,196 from 264,513 at the end of March. Wells Fargo began a series of layoffs last year after pressure to dramatically reduce costs came to a head when the firm reported a quarterly loss.
The bank is still under a costly Federal Reserve-imposed asset cap limiting its balance sheet to its size at the end of 2017. Earlier this year, Wells Fargo scored a sign of progress in its efforts to escape the penalty by securing the Fed’s acceptance of a proposal for overhauling risk management and governance. Period-end assets were $1.95 trillion, down from $1.97 trillion a year earlier.