Wells Fargo management prodded on expenses after profit decline

Top Wells Fargo & Co. executives were grilled by analysts on Friday about whether they're doing enough to control expenses after the bank reported a drop in second-quarter profit.

Like its big bank peers, Wells Fargo has been challenged by a prolonged period of historically low interest rates, which fell further in the second quarter.

Even as the San Francisco-based lender extended more loans, its profits fell 3.5 percent because it has started setting aside more money for possible losses in the future.

Revenue growth was not enough to offset those increased provisions, as well as higher costs elsewhere. The expense line was boosted by standard operating costs like compliance and personnel, as well as investments in things like biometric scanners and technology to approve loans more quickly.

At least five analysts asked Chief Executive John Stumpf and Chief Financial Officer John Shrewsberry about those operating expenses during a conference call on Friday, and whether they can come down any further.

Though Wells Fargo is at the high end of a cost-efficiency range that management has set out, the two executives argued that costs are necessary for either day-to-day business or long-term investments that will pay off.

'A lower for longer (interest rate) scenario puts pressure on everything that we do,” Stumpf responded to one analyst who acknowledged he might be 'beating a dead horse” by asking again about costs.

'We are not going to do something that is short-term bright, long-term dull just because of pressure on the revenue side or the earnings side,” Stumpf continued. 'We will continue to work really hard on taking out costs that don't add value.”

Wells Fargo, the third-largest U.S. bank by assets, reported net income applicable to common shareholders of $5.2 billion in the second quarter, down from $5.4 billion a year earlier. Revenue rose 4 percent to $22.2 billion.

Earnings per share slipped to $1.01 from $1.03, matching the average analyst forecast, according to Thomson Reuters I/B/E/S.