Wells Fargo breaks profit expectations due to increased reserves release Reuters

(Reuters)-Wells Fargo turned losses into profits in the second quarter, breaking Wall Street expectations on Wednesday as it released $1.6 billion in reserved funds to pay for non-performing loans.

FuGuo bank (NYSE:) has been under strict regulatory review since 2016, when the details of the sales scandal caused the departure of two CEOs and cost the bank billions of dollars in litigation and remediation costs.

According to a 2018 Federal Reserve order, the bank must not allow its assets to exceed $1.95 trillion.

However, Wells Fargo started to control costs this year, which suggests that it may finally get rid of the episode that has plagued it for nearly five years.

The fourth-largest bank in the United States reported a profit of US$6 billion, or US$1.38 per share, in the most recent quarter, compared with a net loss of US$3.85 billion, or US$1.01 per share, in the same period last year.

According to Refinitiv’s estimates, analysts on average expect a profit of 97 cents per share.

“Wells Fargo has benefited from the continued economic recovery, the strong market that helps drive the returns of our affiliated venture capital business, and the progress we have made in improving efficiency,” said Chief Executive Charlie Schaff.

“The headwinds of low interest rates and tepid loan demand still exist,” he added.

Total revenue increased by 11% to US$20.27 billion.

The bank’s performance includes a reduction of US$1.6 billion in credit loss reserves before tax to compensate for consumer and corporate defaults due to the COVID-19 pandemic in the second quarter.

Its performance in the last quarter was hit by a $9.5 billion loan loss reserve and a $1.2 billion loss related to the sales scandal.

The bank said that bank-wide expenditures fell by 8%, mainly due to reduced operating losses and reduced consultant and contractor expenditures.

Controlling costs is the core of Scharf’s turnover plan.

He said last year that his goal was to cut $10 billion from the bank’s annual spending base of approximately $54 billion in a few years. However, it is unclear how long the bank expects to operate under the regulatory asset ceiling, which limits the growth of loans and deposits required to increase interest income and payment costs.

Average loans for the quarter fell to US$854.7 billion from US$971.3 billion in the same period last year.