Wells Fargo Proactively Cuts Profit in Half to Save Funds for Predicted Loan Losses

Posted originally on the conservative tree house on July 15, 2022 | Sundance

This shouldn’t come as a surprise.  Most banks and financial institutions are being very careful right now as they prepare for the consequences of consumers running out of money.  All banks are securing reserve accounts in anticipation of defaults increasing.

July 15 (Reuters) – Wells Fargo & Co said on Friday its second-quarter profit nearly halved as the bank set aside more funds to cover potential loan losses, while its mortgage lending business came under pressure from higher interest rates.

The fourth-largest U.S. bank reported profit of $3.1 billion, or 74 cents per share, compared with $6 billion, or $1.38 per share, a year earlier. Its total loan loss provisions were $580 million in the quarter, including a $235 million increase due to loan growth.

Under an accounting standard that took effect in 2020, banks must factor the economic outlook into loan loss reserves. Last year, the bank had released $1.6 billion from its reserves for loan losses as the economy rebounded from the pandemic.

Wells Fargo Chief Financial Officer Mike Santomassimo told reporters that retail and business customers remain strong, but the bank is prepared for a potential economic downturn.  “Things will probably get worse, but that’s already included in the overall scenario analysis and the allowance level we have for the quarter,” Santomassimo said.

[…] Big bank executives have sounded cautious so far this earnings season, with JPMorgan Chase & Co’s Chief Executive Jamie Dimon likening the macroeconomic environment to a coming “storm.” (read more)

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