Wells Fargo’s third-quarter revenue was boosted by higher interest rates

WASHINGTON (AP) — Wells Fargo easily beat Wall Street’s third-quarter (Q3) revenue forecast as higher interest rates helped offset a sharp decline in home lending.

The nation’s largest mortgage lender generated $19.5 billion in revenue for the period, driven by $12.1 billion in net interest income, a 36% increase from the same period ago one year old. Wells earned 85 cents per share during the period, below Wall Street earnings projections. The company incurred $2 billion in regulatory and litigation expenses, equivalent to a loss of 45 cents per share. Analysts were expecting a profit of $1.09 for the period. Wells earned $1.17 per share in the third quarter of last year.

Shares of the bank of San Francisco rose 3% in afternoon trading.

Wells has benefited from aggressive interest rate hikes by the Federal Reserve (Fed) this year as the central bank tries to curb the highest inflation in four decades.

The Fed has raised rates five times this year, including three consecutive 0.75 percentage point hikes that pushed its key short-term rate into a range of 3% to 3.25%, the highest level since 2008. Wall Street expects another three-quarter-point hike at the Fed meeting early next month.

While those higher interest rates inflated Wells’ results, the flip side is that fewer people are in the market for home loans. Wells Fargo said its home loan revenue fell 52% from a year ago, when mortgage rates were less than half of the current 6.92%.

Many economists and investors fear the Fed’s aggressive rate hikes could tip the United States (US) economy – which shrank in the first half of the year – into a full-blown recession . The big banks are starting to set aside large sums of money again in the event of a recession. Wells increased its reserves to $784 million, including a $385 million increase in credit losses due to loan growth and a “less favorable economic environment.”

Wells is still trying to get out of strict federal guidelines that set its asset cap at just under $2 billion, hampering its ability to grow.

Wells Fargo office in New York. PHOTO: AP

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