Wells Fargo profit slumps on higher loan loss reserves

Wells Fargo & Co on Friday reported a second-quarter profit that nearly halved as the bank set aside more funds to cover potential loan losses, while its mortgage lending business came under pressure from higher interest rates.

The company said provision for soured loans was $580 million in the quarter and home loans fell 53 per cent from a year earlier.

Well Fargo's loan loss provision for the latest period included a $235 million increase in the allowance for credit losses due to loan growth. Last year, the bank had released $1.26 billion of reserves, helping offset a decline in its mortgage lending business.

US banks including JPMorgan Chase & Co and Wells Fargo have cut mortgage staff in recent months as the industry downsizes from a surge in demand during the pandemic.

Wells Fargo said it cut its noninterest expenses by 3 per cent due to lower revenue-related compensation in its home lending division.

"We do expect credit losses to increase from these incredibly low levels, but we have yet to see any meaningful deterioration in either our consumer or commercial portfolios," Chief Executive Officer Charlie Scharf said in a statement.

Wells Fargo shares fell nearly 3 per cent in premarket trading.

The fourth-largest US bank has been in the regulators' penalty box since 2016 for governance and oversight lapses related to a series of sales and other scandals.