Wells Fargo holding onto pandemic reserves given U.S. economic risks

By Elizabeth Dilts Marshall

NEW YORK (Reuters) -Wells Fargo & Co’s chief financial officer told investors on Tuesday the bank will not release funds it set aside to cover potential pandemic-related loan losses this quarter because of the “uncertainty” facing the U.S. economy.

“We still think there’s significant risk that’s out there,” CFO Mike Santomassimo said at a conference in New York, adding that the bank has released reserves in several recent quarters. “I don’t expect us to continue to have those releases.”

Last quarter, the bank’s $1.1 billion reserve release helped offset a decline in its mortgage lending business. This quarter, Santomassimo told investors mortgage income will decline by 50% from first quarter levels, along with investment bank fees, which are falling on less dealmaking activity.

Soaring interest rates have pressured banks’ home lending portfolios as the increase in borrowing costs is dampening demand for mortgage originations.

Investment banking revenues are down industry wide as fewer companies are choosing to go public and company stock prices are plunging as economic growth slows.

While Santomassimo said Wells Fargo’s trading revenues are likely to be up “a little bit over last year,” trading is not a significant driver of the bank’s business.

Analysts said they expect overall investment banking revenues in the second quarter to decline, despite any gains banks earn from equity and fixed income, currency and commodities (FICC) trading volumes.

(Reporting by Elizabeth Dilts Marshall in New York; Additional reporting by Noor Zainab Hussain in Bangaluru and Sinead Carew in New York; Editing by Lisa Shumaker)