Rising Interest Rates Lift Profits at Bank of America and Wells Fargo
Bank of America and Wells Fargo reported better-than-expected profits on Friday for their latest quarter, helped by rising interest rates. But both banks also increased their reserves against future loan losses, citing what Bank of America described as a “dampened” economic outlook.
Bank of America ended what Brian Moynihan, the bank’s chief executive, called “one of the best years ever for the bank” with $7.1 billion in net income for its fourth quarter, up slightly from the previous year. The bank’s revenue was $24.5 billion, up 11 percent from a year earlier. Net interest income grew 29 percent to $14.7 billion.
The bank added $403 million to its cushion against credit losses, and its net charge-offs — bad debt written off by the bank — grew significantly compared with a year ago but remained below prepandemic levels. Consumer banking was a bright spot for the bank, which reported record net income of $3.6 billion.
Wells Fargo’s earnings were dragged down by legal costs and regulatory fines related to its consumer banking violations. Last month, the bank agreed to pay $1.7 billion in penalties and another $2 billion in damages to settle claims brought by the Consumer Financial Protection Bureau over a variety of misdeeds, including wrongfully repossessing some borrowers’ cars and homes.
The bank reported fourth-quarter profit of $2.9 billion, down from $5.8 billion a year ago, and revenue of $19.7 billion, down from $20.9 billion in the prior year.
Charles W. Scharf, the bank’s chief executive, described the billions that the bank spent last quarter on remediation for its past conduct as “an important milestone in our work to resolve historical issues.” Nearly seven years after its sham accounts scandal came to light, the bank remains under an asset cap restriction imposed by the Federal Reserve in 2018 that limits its growth.
Wells Fargo, once the nation’s largest home lender, reported a sharp drop in its mortgage business as originations declined, with high borrowing costs spooking buyers and stalling the sales market. Like Bank of America, Wells Fargo increased its reserve for loan losses, adding $397 million as a buffer against “a less favorable economic environment.”
But the bank’s customers overall remain strong, with “resilient” deposit balances and spending that has surpassed prepandemic levels, Mr. Scharf said.
Shares of Wells Fargo, which ended trading Thursday at $42.83, fell in premarket trading, and shares of Bank of America, which closed on Thursday at $34.47, also dipped in early trading.