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Wells Fargo Stock Rises Despite Losing Third-Quarter Earnings When Litigation Hits

Wells Fargo Stock Rises Despite Losing Third-Quarter Earnings When Litigation Hits

Updated at 10:15AM EST

Wells Fargo (WFC) Friday reported weaker-than-expected third-quarter earnings, set aside nearly $800 million in credit reserves, but a big jump in net interest income helped boost the lender’s overall revenue after Street expectations, sending shares higher in pre-market trading.

Wells Fargo said earnings for the three months ending in September came in at 85 cents a share, down 27.4% from the same period last year and just shy of street expectations of $1.09 a share. The bank said it took 45 percent of its eventual earnings due to what it called “a variety of historical issues, including litigation, customer processing and regulatory issues.”

The group agreed to pay a $3 billion fine in 2020 to both the US Department of Justice and the Securities and Exchange Commission after accusations of fraud and illegal selling techniques related to the so-called ‘fake account’ scandal.

However, group revenue beat expectations, rising 3.6% to $19.05 billion with net interest income up 36% to $12.1 billion.

The group also set aside $784 million to cover potential bad loans, a move that reiterated a warning voiced by JPMorgan Chase. (JPM) which committed $808 million amid what CEO Jamie Dimon called a “significant headwind” to the global economy.

Wells Fargo released about $1.4 billion in loan reserves during the same period last year, making comparing this year’s earnings increasingly difficult.

โ€œWe have focused on increasing our earnings capacity and see the positive effects of higher interest rates driving robust growth in net interest income and our continued focus on improving operational efficiencies resulting in lower expenses except for the above operating losses,โ€ said CEO Charlie Scharf. โ€œCredit performance remains strong and we continue to invest in technology platforms, digital platforms, and an expanded product suite.โ€

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He added, “Consumer and corporate clients remain in a strong financial position, and we continue to see historically low delinquencies and high repayment rates across our portfolios.” โ€œWe are closely monitoring risks related to the continuing impact of high inflation and interest rate increases, as well as broader geopolitical risks, and while we expect to see continued increases in delinquencies and eventual credit losses, the timing remains unclear.โ€

Wells Fargo shares were marked 3.15% higher in early trading immediately after the earnings release for stock trading at $43.64 per share.

Earlier this summer, Bloomberg News reported that Wells Fargo is preparing to significantly reduce its former flagship real estate business.

Bloomberg said the shift, which is expected to include significant changes in the way it deals with external mortgage originators, is likely to lead to Wells Fargo focusing on its home lending business to existing clients.

The bank said in a statement that it was “assessing the scale of our mortgage business to adapt to a significantly smaller origin market” while “continuing to research across the company to determine priorities and best position us to serve our customers at scale.”

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