Wells Fargo misses estimates as rate hikes hit mortgage unit

Bloomberg

Wells Fargo & Co. missed analysts’ earnings estimates as the Federal Reserve’s rate hikes started to cool the once-hot housing market, hurting the company’s mortgage-lendingbusiness.
Mortgage-banking income falls 79% to $287 million in the quarter, according to a statement. That missed analysts’ $392.4 million estimate and helped bring second-quarter net income down to $3.12 billion, below the $3.19 billion
analysts had expected.
The Fed’s rapid rate increases, intended to tamp down surging inflation, have helped banks’ net interest margins while threatening to squelch consumers’ demand for loans. The rising rates already have sharply reduced the number of customers refinancing their mortgages and have weighed on home-sales activity as well, Chief Financial Officer Mike Santomassimo said.
“It will be a challenging market in the mortgage business for the next couple quarters as things start to stabilise and we see where the path of rates are going to go,” Santomassimo said on an conference call with reporters. Wells Fargo is among firms that have been laying off and reassigning staff in its mortgage division.
The lender reported a $580 million loan-loss provision, while analysts had expected $414.7 million. That marks a turnaround from a year earlier, when a $1.26 billion release of provisions padded results.
The report offers another look at how the biggest US lenders fared through a quarter marked by rate hikes, persistent inflation and recession fears. Rival JPMorgan Chase & Co. temporarily suspended share buybacks and reported second-quarter results that fell short of analysts’ estimates, driving its shares down 3.5%.
Wells Fargo’s net interest income rises to $10.2 billion, matching what analysts were expecting. The 16% increase demonstrates the boost banks are already getting from the Fed’s rate hikes.
Non-interest expenses were $12.9 billion in the quarter, down 3.4% from a year earlier while higher than analysts expected. Cost-cutting has been a key part of Chief Executive Officer Charlie Scharf’s plan to remake the firm since taking over almost three years ago, including by trimming the workforce. Headcount fell to 243,674 at the end of the second quarter, from 246,577 three months earlier.
Wells Fargo also remains under a costly Fed-imposed asset cap limiting its size to its level at the end of 2017. Period-end assets declined 3.3% from a year ago to $1.88 trillion.