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Wells Fargo stock took a hit Wednesday, as a surge in bad loans overshadowed record profit, sending its shares down 5.3 percent.
But some of that pressure may be profit-taking by investors who were expecting a robust profit for the quarter, and going forward the bank's profitability remains “very strong,” Howard Atkins, the company’s chief financial officer told CNBC on Wednesday.
The California-based bank, which acquired Wachovia last year, reported an 81 percent increase in profits this quarter, topping Wall Street’s expectations. But nonperforming assets, where borrowers are not making payments, soared 45 percent from the first quarter, to $18.34 billion, including a 69 percent jump from commercial and commercial real estate loans. (Read full story on earnings here)
Despite continued concerns over the loan market, Wells Fargo generated $14.2 billion in capital towards the $13.7 billion stress test requirement established by the Fed this quarter. And the company expects to earn more in the third quarter through internal sources, said Atkins. (For his full comments see the video)
Wells Fargo [WFC
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] is seeing increases in volumes across its business: The company extended over $200 billion in credit over the quarter; deposit checking accounts are up 20 percent; client assets under management are up 8 percent, he told CNBC's Maria Bartiromo. “Some of that may be market share growth that we’re getting given opposition in the marketplace,” said Atkins.
Meanwhlie, the bank's net revenue doubled the volume of credit costs, a $5 billion difference, he said.
Despite a softening commercial-market, Atkins said, the consumer-side is demonstrating signs of improvement. Early stage delinquency numbers on the consumer portfolio, for instance, have slowed, he said. He cautioned that loan demand has moderated due to deleveraging on both the consumer and commercial ends.
“That’s actually a healthy sign,” he said. “Because the markets are opening up. Consumers and commercial customers are in the process of deleveraging their balance sheets. That will play out and then we should start seeing more loan demand again.”
Meanwhile, the merger between Wells Fargo and Wachovia is proceeding on pace and is creating “two-way synergies” that create revenue opportunities, he said.
“If that continues, this is going to be an interesting year for us,” he said. “What we’re trying to do is to grow the top line for sustainability well-past the end of the credit cycle. And when credit costs begin to moderate, we’ll see more profitability for the company.”
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