Wells tops Wall Street estimates with $5.8B in 4Q profit

The New York Stock Exchange operates during normal business hours in the Financial District, Wednesday, Oct. 13, 2021, in New York. Stocks are opening lower on Wall Street Monday, Jan. 10, 2022 led by more declines in technology companies. The S&P 500 was down 1.1% in the early going, while the tech-heavy Nasdaq was down 1.7%. (AP Photo/John Minchillo, File)

Shown is a Wells Fargo location in Philadelphia, Tuesday, Oct. 12, 2021. Wells Fargo easily beat Wall Street targets, Friday, Jan. 14, 2022, in the fourth quarter, just as interest rates appear poised to take off and further boost the nation’s largest mortgage lender. (AP Photo/Matt Rourke)

SILVER SPRING, Md. (AP) — Wells Fargo easily beat Wall Street expectations for the fourth quarter with interest rates beginning to take off, likely another boost for the nation's largest mortgage lender going forward.

The San Francisco bank earned $5.8 billion, or $1.38 per share, handily surpassing the $1.11 industry analysts were expecting, according to a survey by the data firm FactSet. Wells took in $20.86 billion in sales in the quarter, also topping Wall Street projections of $18.8 billion. The bank had revenue of $18.49 billion in the same quarter last year.

Wells reported $9.26 billion in net interest income in the period, down slightly from last year, but expected to bounce back this year with rates on long-term loans seem destined to rise quickly. The Federal Reserve announced last month that it would begin dialing back its monthly bond purchases — which are intended to lower long-term rates — to slow accelerating inflation. Even with the expected three or four rate increases in 2022, the Fed’s benchmark rate would still be historically low at around 1%.

Average long-term U.S. mortgage rates jumped again this past week to 3.45%, their highest level since March 2020, just as the coronavirus pandemic was breaking in the U.S. Economists expect them to rise further as the Fed tightens credit, meaning more profits for banks, especially Wells, which depends heavily on mortgages.

The company said it decreased the amount of money it held aside for credit losses by $875 million. Banks set aside tens of billions of dollars to guard against customer defaults early in the pandemic; some of those billions are now being moved back onto the positive side of their balance sheets.

Wells is still trying to exit the strict federal guidelines that sets its asset cap just under $2 billion, hindering its ability to grow.

The Federal Reserve capped the size of Wells Fargo’s assets in 2018 after a series of scandals, most notably the uncovering of millions of fake checking accounts its employees opened to meet sales quotas. The Fed lifted that cap last April as part of the federal government’s Payroll Protection Program because many of Wells’ small business customers were blocked from applying, but most of the restrictions remain.

“The changes we’ve made to the company and continued strong economic growth prospects make us feel good about how we are positioned entering 2022,” Wells CEO Charlie Scharf said. “But we also remain cognizant that we still have a multiyear effort to satisfy our regulatory requirements – with setbacks likely to continue along the way – and we continue our work to put exposures related to our historical practices behind us.”

Like Bank of America earlier this week, Well also announced it was eliminating transfer fees for non-sufficient funds overdraft protection and limiting other fees. The bank said it would also introduce earlier access to direct deposits and a 24-hour grace period for overdrafts.