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(Reuters) -Wells Fargo & Co’s first-quarter profit dropped 21% but beat Wall Street expectations on Thursday as top boss Charlie Scharf plans to keep a tight rein on costs cushioned a drop in mortgage lending.
Overall average loans grew 3% in the quarter, largely helped by credit card and auto lending. Mortgage loans, however, fell 33% from a year ago on lower originations as the Federal Reserve raised interest rates to tame soaring inflation.
“Our internal indicators continue to point towards the strength of our customers’ financial position, but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation and this will certainly reduce economic growth,” Chief Executive Charlie Scharf said.
“In addition, the war in Ukraine adds additional risk to the downside.”
Wells Fargo leans heavily on revenue from its consumer and corporate banking business, as it does not have a large capital markets division compared with Wall Street rivals Goldman Sachs Group Inc and Morgan Stanley.
Non-interest expenses fell 1% on lower personnel and divestitures, in line with Scharf’s plan to turn around the bank and save about $10 billion annually over the longer term.
Net interest income rose 5% during the quarter helped by higher loan balances and a decrease in long-term debt, among others. Overall average loans grew to $898 billion in the past quarter, up from $873.4 billion a year earlier.
Consumer spending has been on the rise for months, as the United States emerges from the COVID-19 pandemic and many make up for lost time traveling, shopping and dining out.
Top executives at some of the big U.S. banks had said early in the first quarter that consumer have healthy cash balances in their banks and are eager to spend and borrow.
The fourth-largest U.S. lender posted a profit of $3.67 billion, or 88 cents per share, for the three months ended March 31, compared with $4.64 billion, or $1.02 per share, a year earlier.
Analysts on average were expecting the bank to report a profit of 80 cents per share, according to Refinitiv data.
Total revenue fell 5% to $17.59 billion, compared with estimates of $17.8 billion.
Reporting by Sohini Podder in Bengaluru and Elizabeth Dilts-Marshall in New York; Editing by Arun Koyyur
