Wells Fargo’s profit beats estimates as the bank releases Reuters reserve funds

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© Reuters. FILE PHOTO: A Wells Fargo logo appears in New York City

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By Noor Zainab Hussain and David Henry

(Reuters) – Wells Fargo & Co reported a first quarter profit ahead of Wall Street estimates on Wednesday as the bank slashed its reserves by $ 1.6 billion and stabilized costs associated with the year-long selling practices scandal.

The San Francisco-based lender did not report any significant restructuring and reorganization charges in the quarter as Chief Executive Officer Charlie Scharf takes a “multi-year trip” to overhaul the bank.

The fourth largest U.S. lender said earnings rose in the three months to March from $ 653 million, or 1 penny per share, to $ 4.74 billion, or $ 1.05 per share, last year.

According to Refinitiv’s IBES estimate, analysts had expected an average profit of 70 cents per share.

The release of risk provisioning increased earnings per share by 28 cents.

Last year’s slight gain was caused by an exceptionally high provision for potential loan losses as U.S. banks braced themselves for unpaid bills and left millions of people unemployed due to the COVID-19 pandemic.

Since then, ultra-loose monetary policy, trillions in economic aid, and an accelerated vaccination program have largely put the world’s largest economy on more solid foundations.

JPMorgan Chase & Co (NYSE 🙂 announced earlier in the day that it had released more than $ 5 billion in reserves in the first quarter, helping the largest U.S. bank’s earnings soar nearly 400%.

Wells Fargo (NYSE 🙂 reported an overhead or efficiency rate that measures cost per dollar of sales of 77% compared to 74% last year.

Income before taxes and provisions decreased 13% to $ 4.07 billion.

According to analysts, changes in pre-accrual earnings this quarter are more important than usual as they are not affected by different banks’ assessments of future credit losses.

Wells Fargo has been penalized by regulators since 2016, when details of a sales scandal that resulted in the loss of two senior executives and billions in litigation and redevelopment costs, and a federal reserve-imposed limit of $ 1.95 trillion, emerged .

The asset limit has kept Wells Fargo from freely increasing loans and deposits to increase interest income and better cover costs. Other banks’ balance sheets have risen.

Last year, Scharf said he was looking for a cost of $ 10 billion to reduce Wells Fargo’s annual cost base of around $ 54 billion over several years because the overhead ratio is worse than comparable companies.

“Depreciation is at historic lows and we are making changes to improve our business and efficiency. However, low interest rates and lukewarm credit demand continued to be a headwind for us in the quarter,” said Scharf on Wednesday.

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