(Reuters) -Wells Fargo & Co’s profit jumped 32% in the first quarter as it earned more from interest rate payments, helped by the U.S. Federal Reserve’s tighter monetary policy, the lender reported Friday.
The bank, however, set aside $1.21 billion in the quarter to cover for potential loan losses, compared to a release of $787 million a year earlier. The provision included a $643 million rise in the allowance for credit losses reflecting an increase for commercial real estate loans, primarily office loans, as well as an increase for credit card and auto loans, the bank said.
Banks are building up rainy day funds as fears of an economic slowdown mount from the U.S. Federal Reserve’s aggressive interest rates hikes to tame inflation, as well as the recent turmoil in the banking sector fueled by the failures of two mid-sized banks.
The collapse of Silicon Valley Bank and Signature Bank last month prompted a rout in bank stocks as investors fretted over broader weaknesses in the industry.
Wells Fargo contributed $5 billion as part of a group of large U.S. banks that injected a combined $30 billion in deposits into First Republic Bank in March, throwing a lifeline as the regional lender got caught up in the crisis.
“We are glad to have been in a strong position to help support the U.S. financial system during the recent events that impacted the banking industry. Regional and community banks are an important part of our financial system,” CEO Charlie Scharf said in a statement on Friday.
Deposits at Wells Fargo fell 2% to $1.36 trillion at the end of March, compared with $1.38 trillion at the end of last year.
U.S. banking giants were flooded with cash as worried depositors moved their funds from small and regional lenders. The migration has since slowed.
Net-interest income surged 45% to $13.34 billion in the first quarter.
The fourth-largest U.S. lender reported a profit of $4.99 billion, or $1.23 per share, for the quarter ended March 31, compared with $3.79 billion, or 91 cents per share, a year ago.
Wells Fargo is also still working to contain the fallout from a scandal over its sales practices that led to hefty fines and an asset cap imposed by the Fed.
Overall, non-interest expenses fell to $13.68 billion from $13.85 billion a year earlier, mainly driven by lower operating losses.
In the fourth quarter of 2022, the bank had posted $3.3 billion in operating losses related to lawsuits, customer remediation and regulatory matters linked to the scandal.
Wells Fargo’s total revenue rose 17% to $20.73 billion in the first quarter.
(Reporting by Noor Zainab Hussain and Manya Saini in Bengaluru and Saeed Azhar in New York; Editing by Sriraj Kalluvila)
