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Current Mortgage Interest Rates At Wells Fargo – The Wells Fargo logo is seen in New York, USA, January 10, 2017 /Stephanie Keith/File Photo Acquire Licensing Rights
Apr 14 () – Wells Fargo & Co (WFC.N)’s profit on Friday beat first-quarter expectations as the company earned more on higher interest rates, even as executives forecast tighter monetary policy will dampen economic activity.
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The bank also saw a $643 million increase in allowances for loan losses, including commercial real estate, credit card and auto loans.
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Analysts have warned of further weakness in the commercial real estate (CRE) market as widespread remote work clears offices in major cities. During a conference call with analysts, Wells Fargo executives detailed the bank’s exposure to CRE.
“There are risk areas, such as commercial real estate, that are likely to have a mixed impact on institutions,” CEO Charlie Scharf said. “We proactively manage our own exposures.”
Outstanding CRE corporate loans totaled $154.7 billion, representing 16% of total loans, of which office loans totaled $35.7 billion at the end of March.
The office market continues to show signs of weakness due to lower demand, higher financing costs and difficult capital market conditions, said Chief Financial Officer Mike Santomassimo.
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On Friday afternoon, the bank’s shares rose by 0.4%. After the results beat expectations, they rose more than 4% in pre-open trading.
While rate increases have helped boost U.S. lenders’ interest income in recent quarters, those gains have come amid growing concerns about the economy as the Federal Reserve keeps rates “higher for longer.”
“Taking into account the pace of increases, we do expect some slowdown in the economy, but so far it has been very strong. You can also see this in the labor market,” Santomassimo said.
The bank set aside $1.21 billion to cover potential loan losses this quarter, compared with releasing $787 million a year earlier.
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Banks are stockpiling funds for a rainy day as fears grow of an economic slowdown caused by the Fed’s aggressive interest rate increases, as well as the recent disruption in the banking sector caused by the failures of two mid-sized banks.
The collapse of Silicon Valley Bank and Signature Bank last month sent bank stock prices tumbling as investors worried about broader weaknesses in the industry.
Wells Fargo contributed $5 billion as part of a group of large U.S. banks that injected $30 billion in deposits into First Republic Bank (FRC.N) in March.
“We are pleased to be in a strong position to support the U.S. financial system through the recent events that have impacted the banking industry. Regional and local banks are an important part of our financial system,” Scharf said in a statement.
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Deposits at Wells Fargo fell 2% to $1.36 trillion at the end of March compared with $1.38 trillion at the end of last year.
In the quarter ended March 31, the bank earned $1.23 per share, excluding one-time items. That compared with the average analyst estimate of $1.13 per share, according to Refinitiv IBES data.
Higher interest rates also boosted JPMorgan Chase & Co (JPM.N)’s first-quarter profit, with the largest U.S. lender remaining resilient amid the banking crisis.
“Both Wells Fargo and JP Morgan delivered very, very solid results that exceeded expected earnings. “Deposits are down, but actually these big banks have been so flooded with deposits over the last few years that they didn’t know how to put the money to work,” said Opimas CEO Octavio Marenzi.
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Average loans in the bank’s commercial banking division increased by 15%, while commercial loans increased by approximately 7% compared to the previous year.
Wells Fargo continues to work to contain the fallout from a sales practices scandal that led to large financial penalties and asset restrictions imposed by the Fed.
Overall, noninterest expenses fell to $13.68 billion from $13.85 billion a year earlier, mainly due to lower operating losses.
In the fourth quarter of 2022, the bank reported $3.3 billion in operating losses related to lawsuits, customer remediation and regulatory issues related to the scandal.
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Reporting by Noor Zainab Hussain and Manya Saini in Bengaluru and Saeed Azhar in New York; Edited by: Sriraj Kalluvila
Manya Saini reports on America’s leading publicly traded financial companies, including top Wall Street banks, card companies, asset managers and fintechs. It also covers late-stage venture capital financing, initial public offerings on U.S. exchanges, and news and regulatory developments in the cryptocurrency industry. Her work usually appears in the website’s sections devoted to finance, markets, business and the future of money. Contact: 9958867986
Saeed Azhar is a financial journalist and member of the US banking team covering the largest banks on Wall Street. He focuses on Goldman Sachs and Bank of America, and also writes about regional banks. Before moving to New York in July 2022, he led the Middle East finance team from Dubai and also worked in Singapore covering Southeast Asian finance. Contact: +1-3479086341WASHINGTON – Wells Fargo Bank dramatically increased its debt to the Federal Home Loan Bank of Des Moines, more than doubling the San Francisco institution’s advances and accounting for the majority of its borrowings at the government-sponsored enterprise.
Wells borrowed $40.1 billion from the Des Moines Bank, bringing the institution’s total advances to $77.1 billion. At year-end, Wells loans accounted for nearly 59% of Des Moines Home Loan Bank’s total loans.
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Wells’ debt was so large that it accounted for more than half of the total $71.2 billion increase in advances across all 11 Home Loan banks in 2016. Overall, banks had advances of $705.2 billion at year-end.
The sudden increase in the number of advances made by Wells raises several questions, including why the company needed so many so quickly and whether there was a risk of concentration in one institution accounting for such a large amount of loans at one home loan bank.
“The FHLB’s dependence on a single member institution is a problem,” said Basil Petrou, co-managing director of Federal Financial Analytics. “What happens if Wells Fargo decides to move its operations to another FHLB?”
Other home loan banks with a high concentration of single-member advances have been burned in the past. Seattle Home Loan Bank merged with the Des Moines institution in part because its largest member, Washington Mutual, went bankrupt in 2008.
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“Seattle was dependent on Wamu, and now Des Moines is dependent on Wells Fargo,” Petrou said. “And you never think something bad is going to happen until it does.”
Thanks to its different charters, Wells has access to more than one home loan bank, but it chose to concentrate its advances in Des Moines through a bank based in Sioux Falls, S.D. Wells is also a member of Home Loan Banks in Dallas and San Francisco.
“Our other banks have access to other FHLB locations, but we have chosen to engage primarily through Des Moines under our WFBNA charter,” a Wells Fargo spokesman said Monday in a written response to a reporter’s question.
As for why the bank’s debt increased so dramatically, Wells declined to answer. Petrou said he suspects higher financing costs after Wells’ fake-account scandal are to blame. The incident led to financial penalties and downgrades by rating agencies.
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Jim Vogel, executive vice president of FTN Financial, noted that banks’ Home Loan lending was “pretty attractive” last year thanks to widening Libor spreads and tighter offerings of agency discount and floating rate bonds.
John Makeray, vice president of the Global Financial Institutions Group, noted that as of January 1, 2017, banks had to meet higher liquidity requirements and Federal Home Loan banks were offering attractive rates.
“For Wells Fargo, $40 billion is a small number,” Maokeray said. “Wells is always looking for the cheapest source of financing.”
“We further strengthened our liquidity position in 2016 prior to increasing our regulatory minimum liquidity coverage ratio on January 1, 2017,” Wells Fargo said.
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Des Moines Home Loan officials said there was nothing unusual or risky about Wells’ move.
“Wells is a creditworthy customer and must provide adequate security for the advances and purchase FHLB stock,” Michael Wilson, president and CEO of the Des Moines bank, said in an interview. “The benefit to the FHLB is that large member revenues cover most of the operating costs.”
“We also generate a large amount for the affordable housing program, separate from that revenue,” Wilson said. “Large members also provide a lot of liquidity to our debt, which makes it attractive to investors. We think this is positive for the bank.”
Wells isn’t the only major bank to increase lending in recent years. In 2012, there was a significant increase in debt incurred by JPMorgan Chase, Wells, Citigroup and Bank of America. Total advance payments to the system rose to nearly $500 billion by the end of 2013 from $381 billion in March 2012. This increase was largely the result of new Basel III liquidity requirements, but it sparked scrutiny by the Office of Inspector General of the Federal Housing Finance Agency.
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IG audit
