Wells Fargo Slips on Lower Earnings

Wells Fargo & Co. (NYSE:WFC) said third-quarter earnings declined 20 cents per share from the prior-year quarter as the company disclosed a $1 billion litigation accrual for mortgage-related regulatory investigations.

Brief summary of earnings

The San Francisco-based bank reported revenues of $21.9 billion and net income of $4.6 billion during the quarter, driven by lower revenues across the company’s reporting segments. Net interest margins declined 3% due to “accelerated prepayments, lower average loan balances, growth in average deposits and growth in trading assets,” according to the earnings release.

Community banking net incomes declined 26% from the prior quarter due to the litigation accrual and higher noninterest expenses. Noninterest expenses increased 13% year over year due to higher operating losses and professional service expenses.

Chief Financial Officer John Shrewsberry mentioned Wells Fargo’s net interest income declined $7 million due to lower average loan balances. Although the company had “loan growth in residential mortgage, credit card and subscription finance portfolios,” according to CEO Tim Sloan, Wells Fargo reported a $13.1 billion year-over-year decrease in consumer loans. Additionally, management expects continued declines in automobile and student loans.

Stock price drops 3% on lower earnings

Wells Fargo traded 3% lower as the company missed analyst expectations for both revenue and earnings. The company’s three-year revenue growth rate of 3.50% is below the historical 10-year average and underperforms 54% of global competitors.

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Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (TradesPortfolio) currently owns approximately 468 million shares of Wells Fargo.

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Disclosure: I do not have positions in the stocks mentioned.

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