Wells Fargo Misses Earnings Estimates, Reports $114M Wealth-Unit Refund

The bank accrued a $114 million expense to refund wealth-unit customers who had been overcharged in the last seven years, and $171 million for foreign-exchange clients, including those who may have received pricing “inconsistent with commitments made” to them, Wells Fargo said.

Mortgage fees declined by a third in the quarter to $770 million, the lowest in more than five years, while total average loans slipped 1 percent to $944.1 billion. Net income missed analysts’ estimates as the bank took a $481 million tax expense.

Lenders including Wells Fargo are battling for a smaller mortgage pie as rising interest rates make home loans more expensive and nonbank competitors take greater market share.

CEO Tim Sloan had warned investors of “overcapacity” in mortgages at an investor conference in May.

JPMorgan Chase & Co. and Citigroup Inc. also reported results Friday, posting profit that beat analysts’ estimates. JPMorgan, the largest U.S. bank, generated better-than-expected loan growth and trading revenue in the quarter, while Citigroup had record fees from its treasury and trade solutions business.

Here’s how Wells Fargo did:

• Net income fell 11 percent to $5.2 billion, or 98 cents a share, from $5.86 billion, or $1.08, a year earlier.
• Excluding the tax charge, per share profit was $1.08, missing the $1.12 average estimate of 27 analysts surveyed by Bloomberg.
• Revenue declined 2.7 percent to $21.6 billion, in line with analysts’ expectations.
• Net interest margin, the difference between what a bank charges borrowers and pays depositors, increased 9 basis points from the previous three-month period and 3 basis points from a year earlier.
• Efficiency ratio, a measure of profitability, improved to 65 percent from 69 percent in the first quarter. Sloan is targeting 55 percent to 59 percent in the long term, excluding litigation costs.