The largest U.S. car lender is trying to avoid the auto market’s pain.
Wells Fargo & Co.’s new car loans dropped by almost half in the second quarter, while its automotive portfolio fell to the lowest level in two years after the San Francisco-based company tightened underwriting standards.
The bank has slashed the volume of loans it made to purchasers of new and used autos after greater numbers of borrowers fell behind on payments. Wells Fargo’s caution was reflected in the amount of bad loans it was forced to write off, which declined in the three months ended June 30 compared with a year earlier, the firm said Friday in its second-quarter earnings statement.
The slowdown has been another hurdle for Wells Fargo’s consumer operations, which have seen revenue from mortgage lending slip while the bank also struggles to recover from a sales-practices scandal in its retail unit. Improvements in wealth-management earnings, along with the benefit of several one-time items, including the sale of an insurance unit, helped offset a drop in its lending businesses as total net income rose from a year earlier.
The quarterly results show Chief Executive Officer Tim Sloan is still struggling to move the company past the turmoil that erupted in September, when authorities said branch staff may have opened millions of fake deposit and credit-card accounts to reach sales goals. Costs from the episode are mounting, as the firm pays for lawyers, consultants and advertising.
The lender’s shares slid 2 percent to $54.48 at 9:39 a.m. in New York, the most since May 31. The stock has declined 1.2 percent this year.
Soon after regulators fined Wells Fargo $185 million in September for creating an aggressive “cross-selling” culture that encouraged bad behavior by employees, the bank began offering monthly updates on business trends at its retail unit. The purpose, Sloan said at the time, was to offer greater “transparency” into the firm’s workings. In May, Sloan said the lender was cutting back to quarterly releases as he thought the bank “was on the right path” to changing its ways. The data released Friday didn’t include the same information as the earlier monthly reports, such as new customer accounts and closures.
Profit for the community bank, which includes the retail unit, fell 5.9 percent in the quarter to $2.99 billion as increasing expenses eclipsed revenue gains.
Total net income increased 4.5 percent to $5.81 billion, or $1.07 a share, from $5.56 billion, or $1.01, a year earlier. That beat the $1.01 per share average estimate of 26 analysts surveyed by Bloomberg. One-time gains in the quarter included $186 million in tax benefits, mostly from the sale of an insurance business.
Total revenue was little changed from a year earlier at $22.2 billion, missing analysts’ estimates of $22.5 billion, while while expenses rose 5 percent to $13.5 billion on higher spending for salaries and professional fees.
Auto originations fell 45 percent to $4.54 billion from a year earlier, the lowest in at least three years. That reduced Wells Fargo’s auto-loan portfolio to about $58 billion, putting the bank in jeopardy of losing its status as the largest U.S. auto lender to Ally Financial Inc. Ally had $58.8 billion in auto loans as of March 31, according to Bloomberg Intelligence.
Profit from wholesale banking, Wells Fargo’s second-largest division, rose 15 percent to $2.39 billion even as revenue declined. The unit’s earnings were helped by the sale of the insurance unit to KKR & Co.-backed USI Insurance Services.
Wealth-management profit climbed 17 percent to $682 million as assets under management rose 8 percent to what the bank said was a record $1.8 trillion. David Carroll, the unit’s long-time leader, retired on July 1.