(Reuters) – Wells Fargo on Friday reported a sharper-than-expected 48% drop in second-quarter profit as the U.S. bank increased provisions for bad debts as interest rates rose hampered its mortgage lending activities.
The fourth largest bank in the United States strengthened its reserves for credit losses by setting aside 580 million dollars (as many euros), while it had taken over 1.26 billion dollars in reserves over the corresponding period. last year.
In the first quarter, the reduction in these provisions had made it possible to offset the decline in the mortgage lending activity. But in the second, rising interest rates further dampened demand for home loans, resulting in a 53% drop in profits for this business segment.
After hiring tens of thousands of people between 2018 and 2020 to cope with the surge in loan originations and refinancings in a context of very low interest rates, the mortgage credit sector in the United States is now in the process of reduce its workforce.
JPMorgan and Wells Fargo have begun to reduce their workforces in this area and this movement should continue in the coming months, analysts believe.
Russia’s invasion of Ukraine in February and fears of an impending economic recession also dealt a blow to major US banks, including Wells Fargo.
The latter has also remained under the close surveillance of federal authorities since the scandal that erupted in 2016 with the discovery of millions of fictitious accounts and illegal sales techniques. The size of its balance sheet has been capped by the Federal Reserve since 2018.
In the April-June quarter, Wells Fargo posted a profit of $3.1 billion, or $0.74 per share, compared with $6 billion ($1.38 per share) a year earlier.
Analysts had expected earnings per share of $0.80 per share, according to Refinitiv data.
(Reporting Noor Zainab Hussain and Niket Nishant in Bangalore and Elizabeth Dilts Marshall in New York; French version Valentine Baldassari, editing by Marc Angrand)