Wells Fargo profit drops as loan provisions for energy loans rise

July 15 (Reuters) – Wells Fargo & Co reported a 3.5 percent fall in quarterly profit on Friday as it set aside more money to cover potential losses on new loans it made.The bank, the biggest U.S. mortgage lender, said its net income applicable to common shareholders fell to $5.2 billion in the second quarter, from $5.4 billion a year earlier.Earnings per share slipped to $1.01 from $1.03, matching the average analyst forecast, according to Thomson Reuters I/B/E/S. Revenue rose 4 percent to $22.2 billion.Although Wells’ results were generally in line with expectations, Oppenheimer analyst Chris Kotowski said they were “an indication of how difficult revenue growth is to come by.”Wells Fargo shares slipped 0.9 percent to $48.52 in premarket trading. Up to Thursday’s close, its stock had dropped about 10 percent since the start of the year, but Wells remained the most highly valued U.S. bank.Like JPMorgan Chase & Co on Thursday, Wells said it grew its loan book significantly during the second quarter, especially in commercial loans, auto loans and credit cards. Residential mortgage loans also grew, but revenue from that business fell.Wells Fargo’s $950.8 billion worth of average loans during the quarter was 9-percent above the year-ago and 3 percent higher than the prior period. It was the 16th consecutive quarter of loan growth for the San Francisco-based bank.But with that growth comes the need to boost reserves against loan losses that are possible in the future. The banking industry had been reducing reserves for years as credit conditions improved following the 2007-2009 crisis, but lenders are now building them again.Wells’ provisions for loan losses of $1.1 billion more than tripled from the year-ago quarter, and were 49-percent higher than the first quarter. The bank said its overall credit quality was “solid,” with the exception of its oil and gas portfolio, which has come under pressure due to the decline in energy prices.

Source: Wells Fargo profit drops as loan provisions rise

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