(Reuters) -Wells Fargo raised its annual forecast for net interest income (NII) after its profit surged 57% in the second quarter, sending shares up 4% in premarket trading.
NII climbed 29% to $13.16 billion, benefiting from higher interest rates as Wells Fargo (NYSE:WFC) and other banks raised their borrowing costs following a series of rate hikes by the Federal Reserve to tame inflation.
“The U.S. economy continues to perform better than many had expected,” CEO Charlie Scharf said in a statement. “Although there will likely be continued economic slowing and uncertainty remains, it is quite possible the range of scenarios will narrow over the next few quarters,”
The fourth largest U.S. lender said NII is expected to be about 14% higher than last year’s $45 billion. It had earlier forecast a 10% rise.
Wells Fargo reported profit of $1.25 per share for the three months ended June 30, beating analysts’ average estimate of $1.16 per share, according to Refinitiv data.
The bank set aside $1.71 billion in provisions for credit losses in the second quarter, compared with $580 million a year earlier.
REAL ESTATE WOES
The provision for credit losses included a $949 million increase in the allowance for potential losses in commercial real estate (CRE) office loans, as well as for higher credit card loan balances.
CRE has emerged as a big worry for banks as financing costs rise for many buildings that have been largely vacated by employees who opt to work remotely.
“We do expect that there will be more weakness in the market and it’ll take a while to play out,” said Wells Fargo Chief Financial Officer Michael Santomassimo during an earnings call with the media.
The higher provision also comes against the backdrop of growing worries around the health of the economy as the collapse of three regional lenders fueled a turmoil in the banking sector and prompted calls for tougher regulation.
Wells Fargo is still operating under an asset cap that prevents it from growing until regulators deem that it has fixed problems from a fake accounts scandal.
Scharf has said Wells Fargo’s repair efforts could take several years.
The company has struggled over the past few years to satisfy regulators that it has fixed its problems and repaid customers who were harmed by its sales practices.
Rival JPMorgan Chase (NYSE:JPM) also posted a 67% jump in second-quarter profit on Friday as it earned more from borrowers’ interest payments and benefited from the purchase of regional lender First Republic Bank (OTC:FRCB).
Source: Economy - investing.com
