WFC Wells Fargo and Company

By Ben Eisen 

Wells Fargo & Co. said Wednesday that its third-quarter profit fell 56%, though the bank signaled it was prepared for a wave of soured loans.

The San Francisco-based lender said it made $2.04 billion in the quarter, down from a profit of $4.61 billion a year earlier. Per-share earnings were 42 cents. Analysts polled by FactSet had expected 44 cents.

Still, the results were an improvement from the second quarter, when the bank lost $2.38 billion as it set aside money for potential bad loans.

The pandemic has curtailed earnings across the banking sector this year by forcing lenders to set aside tens of billions of dollars to prepare for loan defaults. Now, with massive stockpiles in place, banks believe they have enough stashed away to let them press pause. Profit rose at JPMorgan Chase & Co. from a year ago and fell at Citigroup Inc., the banks said Tuesday.

Wells Fargo, one of the nation's largest consumer lenders, put aside an additional $751 million in the third quarter for sour loans, largely in its consumer bank. That is significantly smaller than the $9.57 billion it set aside in the second quarter and $3.83 billion in the first quarter.

Loan losses remained low, but the bank said they may be delayed because it has offered payment deferrals during the pandemic.

"As we look forward, the trajectory of the economic recovery remains unclear as the negative impact of Covid continues and further fiscal stimulus is uncertain," Chief Executive Charles Scharf said in a statement.

The bank entered the coronavirus recession in worse shape than its peers, hobbled by declining revenue and a bloated expense base. It has also been attempting to claw its way back from a four-year-old fake-accounts scandal.

In the third quarter, the bank reported revenue of $18.86 billion, down 14% from $22.01 billion a year earlier. Analysts had expected revenue of $17.99 billion.

Mr. Scharf is now a year into the job. He has said the bank should cut $10 billion from its annual expenses, beginning a process that is expected to last well into next year and result in tens of thousands of layoffs.

Noninterest expenses in the third quarter totaled $15.23 billion, roughly flat from a year earlier. That included $718 million of restructuring charges, which it said were largely tied to severance payments for employees. The bank cut its employee head count by 1,100 in the third quarter.

Expenses also included $961 million of customer remediation payments resulting from the bank's ongoing efforts to resolve its sales-practices scandal. The remediation process has continued longer than initially anticipated, and has recently focused on areas including auto loans, mortgages and deposit accounts, Chief Financial Officer John Shrewsberry said on a call with reporters.

Mr. Scharf said on a call with analysts that the bank is planning to leave some businesses that it doesn't consider core for its customers. One example: The bank has notified customers that it plans to exit the private student loan business, Mr. Shrewsberry said.

Rock-bottom interest rates have dealt another blow to banks, reducing the income they can earn from lending money. Wells Fargo's interest income fell 19% from a year ago to $9.37 billion, while its noninterest income declined 9% to $9.49 billion.

The bank's shares have fallen by more than 50% so far this year. They were down 5.3% Wednesday.

Write to Ben Eisen at ben.eisen@wsj.com

(END) Dow Jones Newswires

October 14, 2020 13:11 ET (17:11 GMT)

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