What happened
Shares of Wells Fargo (NYSE: WFC) traded nearly 7% higher as of 11:40 a.m. EDT, one day after the bank reported earnings for the third quarter of 2021. This is a big move for a large-cap bank.
So what
Wells Fargo reported third-quarter earnings per common share of $1.17 on total revenue of $18.8 billion, and both numbers beat analysts' projections. But the results were really driven by non-recurring factors such as the release of reserves previously built up for potential loan losses that never materialized and the bank's repurchase of $5.3 billion of stock in the quarter.
Overall, investors didn't seem pleased, sending the stock down about 1.5% yesterday. Net interest income, a key driver of revenue, was up very minimally in the third quarter and average loan balances were down from the sequential quarter.
Additionally, Wells Fargo has been dealing with renewed regulatory scrutiny recently, which included a $250 million fine and a new consent order for essentially not fixing old regulatory problems fast enough.
Image source: Getty Images.
Now what
I think it's likely that investors simply overreacted yesterday, or that new investors bought the dip. While regulatory work remains for the embattled bank, Wells Fargo continues to make progress in cutting expenses, as well as ramping up other areas of the bank like credit card lending and investment banking.
Despite Wells Fargo's regulatory issues, I still see a solid plan in place for improving operations, as well as its long-term efficiency and profitability.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has the following options: long June 2022 $55 calls on Wells Fargo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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