The US bank reacted to the increased risk of recession with high provisions. The measures are depressing the quarterly result.
(Photo: dpa)
san francisco A significantly increased risk provision for bad loans in view of the increased risk of recession has caused the profit at the US money house Wells Fargo to collapse. According to its own statements on Friday, the bottom line for the financial group in the second quarter was $3.1 billion – almost 50 percent less than in the same period last year.
Wells Fargo increased provisions for impending loan defaults sharply, which ate at the result. But the bank also struggled in other ways: rising key interest rates dampened the demand for mortgages, which is particularly important for Wells Fargo. Fears of inflation and recession as well as geopolitical risks such as the Ukraine war are weighing on business in the entire banking sector.
Overall, Wells Fargo’s earnings fell 16 percent to $17.0 billion, well below expectations. The stock reacted with price losses before the market.
Competitor Citigroup also earned less: In the three months to the end of June, the surplus fell by 27 percent year-on-year to $4.5 billion due to higher costs and provisions for loans at risk of default, as the money house announced on Friday in New York.
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The total proceeds increased by a surprisingly strong eleven percent to 17.8 billion dollars. Overall, the quarterly figures significantly exceeded analysts’ expectations. The stock rose more than 4 percent premarket.
Citi CEO Fraser speaks of “solid results”
Like the other big US banks, Citi significantly increased loan loss provisions due to the increased risk of a deeper economic downturn. Investment banking revenues also plummeted as IPOs and mergers were rare. However, the trading business with securities flourished due to the high level of nervousness on the stock exchanges, and many investors adjusted their portfolios in the face of fears of inflation and recession. Citi CEO Jane Fraser spoke of “solid results” in a difficult market environment.
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