Wells Fargo Earnings Down By 50% YOY In Q4 2022
Wells Fargo’s net earnings dropped in Q4 2022, pushed down by a settlement and the pressures of a shrinking economy.
The bank announced that its net income fell to $2.86 billion, or 67 cents a share. This is half of its profits from the same time last year, which came in at $5.75 billion, $1.38 per share.
Leaders at Wells Fargo noted that the decline was driven by the fall-off in mortgage demand. Its home lending was down 57% from Q4 2021.
The bank announced this week that it is narrowing its home lending business, exiting the correspondent lending channel and shrinking its servicing portfolio.
This move will force a round of layoffs, but it is unclear how many jobs will be impacted.
Wells Fargo’s revenue was further impacted by $3.7 billion in fines levied by the Consumer Financial Protection Bureau. CFPB officials claim that from “at least 2011 through 2022,” the bank misapplied auto loan payments and made errors in mortgage modification applications, among other problems.
Higher interest rates and loan balances led to a 45% increase in the bank’s interest revenue YOY.
“Rising interest rates drove strong net interest income growth, credit losses have continued to increase slowly but credit quality remained strong, and we continue to make progress on our efficiency initiatives,” CEO Charlie Scharf said in a statement.
Rates flew above 7% in October, their highest point since 2002. Both sellers and buyers backed away from the market, unwilling to commit to higher monthly payments.
They moderated to the mid-6s since then, but demand remains low.
The announcement earlier this week that Wells Fargo is exiting the lending channel and shrinking its service portfolio was breaking news.
Some people are saying it may be big news in the lending space, but will likely not make much of a difference to the average consumer.
Lawrence White, a professor of economics at the New York University Leonard N. Stern School of Business, sat down with the Mortgage Note on Wednesday.
White said because mortgage lending has changed so much in the past few decades, consumers are not likely to see a significant impact as a result of the changes. Rocket Mortgage, United Shore Financial, and loanDepot have grown to become significant leaders in the industry, he said.
“I don’t see the cutback as making a big change in how the mortgage market is going to look,” White said. “Grass will not grow in the streets of America.”
White pointed out that current interest rates, which remain well above 6% for a 30-year fixed mortgage, have a much bigger impact on the average consumer.
“This feels like second order. It’s much less important,” White said of the announcement by Wells Fargo.
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