Wells Fargo's Revenue Beats Estimates Despite Punishment by Fed

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Wells Fargo's Revenue Beats Estimates Despite Punishment by Fed
Credit: © Reuters.

(Bloomberg) -- Wells Fargo (NYSE: WFC ) & Co. reported higher profit and a smaller drop in revenue than Wall Street expected, after the Federal Reserve prohibited the scandal-plagued bank from increasing assets until it fixes its missteps.

First-quarter revenue fell 1.4 percent from a year earlier to $21.9 billion, the San Francisco-based lender said Friday in a statement. That beat the $21.7 billion average estimate of analysts in a Bloomberg survey. The bank warned that it may need to take a charge in coming weeks to resolve a regulatory matter.

“We recognize that it will take time to put all of our challenges behind us,” Chief Executive Officer Tim Sloan said in the statement.

Profit also beat Wall Street expectations, climbing 5.7 percent.

Shares of Wells Fargo rose 1.3 percent to $53.36 at 8:10 a.m. in New York. The stock had dropped 13 percent this year through Thursday, the worst performance in the 24-company KBW Bank Index .

In February, the Fed curbed Wells Fargo’s progress toward recovering from a long-running scandal involving misleading sales practices at its consumer bank. Since then, the nation’s third-largest lender by assets has faced more scrutiny, with the U.S. Department of Justice and Securities and Exchange Commission examining the wealth-management unit, a person familiar with the probes had said.

The bank said it’s in ongoing discussions with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency over issues in its auto lending and mortgage units. Those regulators have offered to resolve the matter for $1 billion in penalties, which could force the lender to revise its latest results. Wells Fargo booked a record $3.25 billion charge in the fourth quarter related to regulatory investigations, sales practices and other matters.

JPMorgan Chase & Co (NYSE: JPM ). and Citigroup Inc (NYSE: C ). also reported first-quarter results Friday, with both posting strong gains in equities trading as stock-market volatility exploded after several years of relative calm.

Here’s a summary of Wells Fargo’s results:

  • Net income applicable to common shareholders rose to $5.53 billion, or $1.12 a share, from $5.23 billion, or $1.03 a share, a year earlier. That beat the average Wall Street estimate of $1.06.
  • Non-interest expense climbed to $14.2 billion from $13.8 billion a year earlier. Analysts expected a decline of about $50 million.
  • Net interest income was $12.2 billion, compared with $12.3 billion in the first quarter of 2017. The average estimate of 11 analysts surveyed by Bloomberg was $12.5 billion.
  • Net interest margin was 2.84 percent, worse than the 2.88 percent estimate.
  • The efficiency ratio, a key measure of profitability, improved to 64.9 percent compared with 76.2 percent at year-end. Sloan is targeting 60 percent to 61 percent, excluding litigation costs.

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