Wells Fargo Expects Continued Slowing of the Economy

Wells Fargo saw net charge-offs increase, loan demand decrease and average deposits decline during the third quarter.

At the same time, consumer spending remained strong, the bank said Friday (Oct. 13) while reporting its third-quarter results.

Wells Fargo CEO Charles W. Scharf said Friday during a quarterly earnings call that the economy remains resilient, helped by the labor market and consumer spending, but the bank expects a continued slowing of the economy.

The bank’s net charge-offs increased from historic lows during the quarter, driven by both its office portfolio and higher credit card loan balances. In response, Wells Fargo increased its allowance for credit losses to $333 million.

“Residential mortgage loans continued to have net recoveries, while our other consumer portfolios all had higher losses with the largest increase in our auto portfolio, which was up from the second quarter seasonal lows,” Wells Fargo Chief Financial Officer Michael Santomassimo said during the call.

Loans were down on both the consumer and the commercial side. Wells Fargo attributed this to higher interest rates, a slower economy and the bank’s own credit tightening actions. While most portfolios declined during the quarter, credit card loans continue to grow.

“Credit card revenue increased 2% from a year ago due to higher loan balances, partially offset by introductory promotional rates and higher credit card rewards expense,” Santomassimo said. “Payment rates have been relatively stable over the past year and remained above pre-pandemic levels.”

Average deposits declined compared to both the previous quarter and a year earlier, which Wells Fargo attributed to consumer spending and customers moving their money to alternatives offering higher yields.

Consumer spending remained strong, with both credit and debit card spending increasing from the second quarter, the bank said.

“Looking ahead, the U.S. economy has continued to be resilient with key support from the labor market and strength in consumer spending,” Scharf said during the call. “Delinquencies have continued to deteriorate at a relatively slow consistent rate without signs of acceleration across our portfolios. Our base case remains a continued slowing of the economy, but we remain prepared for a wide range of scenarios given there is still significant uncertainty ahead.”