Wells Fargo profit slips as loan provisions jump

Friday 15 January 2016 14.35
Wells Fargo has the largest exposure to the energy industry as a percentage of total loans among the big US banks
Wells Fargo has the largest exposure to the energy industry as a percentage of total loans among the big US banks

Wells Fargo & Co, the biggest US residential mortgage lender and a major lender to the energy industry, has reported a 0.8% fall in profit for the last quarter of the year as it set aside more money to cover bad loans. 

Mortgage banking revenue rose 9.6% to $1.66 billion, the first rise in three quarters. 

Wells Fargo also cut non-interest expenses by nearly 2% to $12.40 billion. 

But provisions for credit losses jumped to $831m from $703m in the third quarter, mainly due to a higher loss of $90m on the bank's oil and gas portfolio, as well as seasonal increases in the non-real estate consumer portfolios. 

The San Francisco-based bank's net income slipped to $5.34 billion, or $1.03 per share, in the three months ended December 31, from $5.38 billion, or $1.02 per share, a year earlier. 

Analysts on average had expected earnings of $1.02 per share, according to Thomson Reuters. 

The bank said that net loan charge-offs in its commercial and industrial business, which includes lending to energy sector, rose to $215m from $122m in the third quarter. 

The bank has the largest exposure to the energy industry as a percentage of total loans among the big US banks. 

But it still managed to report a 10.3% rise in commercial and industrial lending in the quarter despite the slump in oil prices. 

Loans to the energy industry account for about 2% of Wells Fargo's total loans, according to analysts. 

The bank's head of corporate banking, Kyle Hranicky, said last month the bank had been talking with industry clients about preserving cash and cutting borrowing limits. 

Wells Fargo's net interest income, a measure of the interest received from loans after paying for funding and accounting for potential loan losses, rose 0.58% to $10.76 billion. 

Total revenue for the three month period rose 0.66% to $21.59 billion. 

The bank's total loans grew 6.3% in the quarter, with the acquisition of GE's commercial lending and leasing assets alone adding about $32 billion to the bank's portfolio. 

New mortgages of $47 billion were 15% lower than in the third quarter, but up 7% from the same time the previous year.