Wells Fargo beats fourth quarter profit expectations but slips on revenue

  • Wells Fargo beat analyst expectations for fourth-quarter earnings per share.

  • The bank fell short on revenue estimates, reporting $20.98 billion for the quarter.

Wells Fargo WFC beat expectations for fourth quarter profit, reporting $1.21 earnings per share before the market open on Tuesday.

But the San Francisco bank fell short of expectations on revenue, reporting $20.98 billion for the quarter, as it reported declines in all three of its main businesses.

Shares of Wells Fargo fell 1.2 percent in premarket trading.

Profit of $6.1 billion fell short of the $6.2 billion recorded in the fourth quarter of 2017, and revenue was 5 percent lower than the prior fourth quarter as well. Wall Street analysts polled by Refinitiv had expected profit of $1.16 a share on revenue of $21.73 billion.

Wells Fargo is still working through its regulatory issues after the Federal Reserve reportedly rejected its plan to prevent more consumer abuses at the bank. It is also in the midst of a cost cutting plan, including the elimination of up to 10 percent of its headcount. On Tuesday it said it met its 2018 expense target and was on track to meet its 2019 goal.

"We have made meaningful improvements to how we manage risk across the company, particularly operational and compliance risk," CEO Tim Sloan said in a statement on Tuesday.

Revenue in consumer and small business banking fell 2 percent, to $11.5 billion, primarily because of lower mortgage banking income and lower market sensitive revenue, partially offset by gains from the sale of branches and certain mortgage loans. Revenue from providing banking and other services to corporations fell 7 percent, to $514 million after the sale of some businesses and lower market sensitive revenue. Revenue from wealth management fell 9 percent, to $3.9 billion.

For the full year 2018, Wells Fargo revenue fell 2 percent, to $86.4 billion, while profit of $22.39 billion was up about 1 percent.

Problem loans decreased 4 percent from the third quarter and non-accruing commercial and consumer loans also fell. But Octavio Marenzi, the CEO of financial consulting firm Opimas, said, "In an environment of increasing interest rates, we are likely to see some erosion in this credit quality in coming quarters, as well as increasing the bank's interest expense."

Investors are listening for what bank executives say about the direction of interest rates this year after four Federal Reserve rate hikes in 2018. They are also likely looking for guidance on 2019 revenue expectations given a probable slow down in U.S. economic growth. Rising short-term rates have narrowed the profits banks make of key activities like lending, and revenue from bond trading was lackluster at the end of last year.

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