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Souring oil and gas loans eat into Wells Fargo profits

Wells Fargo Center on Bunker Hill in Los Angeles.
(Luis Sinco / Los Angeles Times)

Wells Fargo’s first-quarter results fell 6% from a year ago, as the bank had to set aside more money to cover its struggling portfolio of oil and gas loans.

The San Francisco-based bank said Thursday that it had net income of $5.46 billion, or 99 cents per share, down from $5.8 billion, or $1.04 per share, from the same period a year earlier.

The results topped Wall Street expectations. The average estimate of 12 analysts surveyed by Zacks Investment Research was for earnings of 98 cents per share.

The biggest U.S. mortgage lender posted revenue of $22.2 billion in the period, also surpassing forecasts. Five analysts surveyed by Zacks expected $21.57 billion.

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Wells Fargo’ results were affected, like much of its competition, by its exposure to the energy industry. More than half its outstanding loans in the sector are to drilling and oil-exploration companies.

As energy prices have fallen, these companies have struggled to pay back their loans. The bank charged off $273 million in commercial and industrial loans in the quarter, more than double what it did a year earlier.

“The oil and gas portfolio remains under significant stress due to low prices and excess leverage in this industry,” said Wells Fargo Chief Risk Officer Mike Loughlin in a statement.

Wells Fargo’s consumer banking division, its largest business by revenue and profit, once again had a relatively steady quarter.

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The bank originated $44 billion in home mortgages in the quarter, down from $54 billion a year earlier.

The division contributed $3.3 billion in earnings, down from $3.54 billion from a year earlier. However last year’s results included a one-time $359-million tax benefit, and when that was excluded, earnings appeared relatively stable.

The earnings were released one day after Wells Fargo was named one of five large banks whose so-called living wills were deemed insufficient by the Federal Deposit Insurance Corp. and the Federal Reserve Board.

The documents spell out how the banks would facilitate an orderly and rapid exit out of bankruptcy. They are required under the Dodd-Frank reform law enacted following the financial crisis and do not signify that the banks are in any current trouble.

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Wells Fargo & Co. shares have fallen about 10% over the last year. They closed down 25 cents to $48.78.


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