By Ben Eisen
Wells Fargo & Co. said earnings soared in the first three months of the year after the bank released some of the money it put aside for bad loans earlier in the pandemic.
The San Francisco-based lender on Wednesday posted a profit of $4.74 billion for the first quarter, up from $653 million a year earlier. A year ago, Wells Fargo and other big banks set aside billions of dollars to prepare for a coronavirus recession, hammering their profits at the time.
Per-share earnings were $1.05, beating the 71 cents forecast in a FactSet poll of analysts.
Wells Fargo said it had revenue of $18.06 billion, up 2% from $17.72 billion a year earlier. That beat the $17.52 billion expected by analysts.
The bank's sevenfold rise in profit came during what is shaping up to be an economic resurgence. That has prompted banks to release some of the money they stowed away last year to protect against soured loans, which has boosted their bottom lines.
"Economic trends improved during the quarter, and while there are risks, the likelihood of improvement continues to increase," Chief Executive Charles Scharf said in a call with analysts Wednesday.
JPMorgan Chase & Co. and Goldman Sachs Group Inc. both reported sharply higher first-quarter profits on Wednesday.
The buoyant economy has been a boost for bank investors, lifting shares of the largest lenders far more than the broader market so far this year. Wells Fargo, a laggard last year, has been among the biggest gainers. It has risen 39% so far in 2021, including a 5.5% rise on Wednesday.
While consumers and businesses could still default en masse when government aid programs wear off, banks are deciding they pocketed more than they needed at the beginning of the crisis. Wells Fargo said that it released $1.05 billion from its reserves in the first quarter. Net charge-offs declined from a year ago.
Wells Fargo is operating under a three-year-old cap on its growth, punishment for its 2016 fake-account scandal. That has pushed executives to turn to cost-cutting.
The bank's expenses declined from the previous quarter, but were still up from a year ago. They totaled $13.99 billion in the first quarter, up 7% from $13.05 billion a year earlier.
Wells Fargo executives said earlier in the year that they wanted to cut at least $8 billion from the annual budget and recognize roughly $3.7 billion of it this year. The bank has been laying off employees, closing branches and shrinking its office space. Head count shrank by about 4,000 in the first quarter.
The bank also sold its asset-management and corporate-trust businesses in the first quarter. Mr. Scharf said executives hope to see growth in the credit-card business and middle-market investment-banking unit.
Banks have also been challenged by low interest rates, which have eaten into the difference between what they pay to borrow money and what they earn lending it out. Wells Fargo said its net interest income fell 22% to $8.8 billion from $11.31 billion a year earlier.
The bank's book of loans continued to shrink in the first quarter, mirroring a drop-off in loan demand across the industry. Consumer and commercial loans fell 15% from a year ago to $861.57 billion.
Noninterest income, which includes fees, rose 45% to $9.27 billion from $6.41 billion a year earlier.
Wells Fargo's investment-banking division had profit of $1.57 billion, a fivefold increase from a year earlier. It posted the biggest profit since at least early 2019, when it first broke out results for that division. Banks' Wall Street businesses have been a bright spot during the pandemic, though Wells has a far smaller bank than its peers.
Write to Ben Eisen at email@example.com
(END) Dow Jones Newswires