Credit losses a drag on Wells Fargo, other national lenders
Wells Fargo & Co. led several major banks today in releasing financial results that indicate the troubled economy is driving credit losses higher and reducing profitability in the second quarter, Reuters reported.
Wells Fargo reported record profits for the quarter, yet its results and those of other large banks provided fresh evidence that the nation’s banks still face a tough road despite billions of dollars of emergency government support, as credit losses once concentrated in home mortgages migrate to commercial loans, commercial real estate loans and credit card debt.
“Some banks show early signs of slowing deterioration, but there is growing weakness in commercial real estate, which will worsen,” said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine. “This is no longer just a residential housing and home equity problem.”
Wells Fargo, the nation’s fourth-largest bank and largest mortgage lender, said quarterly profits applicable to common shareholders increased 47 percent to $2.58 billion, or 57 cents per share. Before payment of preferred stock dividends, profit rose 81 percent to $3.17 billion and revenues nearly doubled to $22.51 billion. Both figures topped analyst forecasts, Reuters Estimates said.
Yet nonperforming assets, where borrowers are not making payments, soared 45 percent from the end of March to $18.34 billion, including a 69 percent jump from commercial and commercial real estate loans.
Net charge-offs over that period rose 35 percent to $4.39 billion. The San Francisco-based bank added just $684 million to reserves for bad loans, however, giving it $23.53 billion.