Pedestrians walk past a Wells Fargo bank branch in New York, U.S., Thursday, Jan. 13, 2022.

Victor J. Blue | Bloomberg | Getty Images

Wells Fargo on Friday reported quarterly earnings lower than a year ago as the decision to hoard reserves squeezed profits.

Wells Fargo shares rose 2% in premarket trading as revenue beat expectations.

Here is what the bank did:

  • Earnings: 85 cents per share, compared to $1.17 per share in Q3 2021
  • Revenue: $19.51 billion, beating an estimate of $18.78 billion, according to Refinitiv

The bank has taken a provision for credit losses of $784 million after reducing it by $1.4 billion a year ago. The provision included a $385 million increase in the provision for credit losses reflecting loan growth and a less favorable economic environment, the bank said.

“Our strong business performance in the third quarter was significantly impacted by ($2.0) billion, or $(0.45) per share, in operating losses related to litigation, the resolution of customer issues and to regulatory issues primarily relating to a variety of historical issues,” Chief Executive Charlie Scharf said in a statement.

Wells operates under a series of consent orders related to his 2016 bogus account scandal, including one from the Fed that caps the growth of his assets.

As the most dependent on mortgages from the six largest U.S. banks, Wells Fargo came under pressure as sales and refinancing activity fell sharply amid mortgage rates that topped 6%.

This is one of the impacts of the Federal Reserve’s campaign to fight inflation by aggressively raising rates. Wells Fargo, which focuses on retail and commercial banking, was expected to be a big beneficiary of the rate hike.

Net interest income rose 36%, mainly due to the impact of higher interest rates and higher loan balances, the bank said.

“Wells Fargo is well positioned as we will continue to benefit from higher rates and ongoing disciplined expense management,” Scharf said. “Retail and business customers remain in strong financial shape, and we continue to see historically low delinquencies and high payment rates in our portfolios.”

Wells’ better-than-expected revenue was supported by a 28% jump in banking operations on stronger cash management results. Commercial real estate revenue rose 29%, reflecting higher loan balances and the impact of rising interest rates, the bank said.

Fears that the Fed could inadvertently tip the economy into recession have increased this year, weighing heavily on bank stocks. Indeed, more borrowers would default on their loans, from credit cards to mortgages to commercial lines of credit, in a recession.

Wells shares are down about 12% this year, performing better than the S&P 500.

Read all Press release.

– CNBC’s Hugh Son contributed reporting.

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