Wells Fargo beats profit estimates, NII and revenue fall short

Oct 13 — Wells Fargo beat Wall Street estimates for third-quarter profit on Tuesday, but missed net interest income and revenue expectations, sending ​its shares down nearly 3% in volatile premarket trading.

Wall Street banks are reporting results after a tumultuous quarter in which the conflict in Iran roiled markets, drove oil prices higher, fueled inflation concerns and prompted the Federal Reserve to raise ‌interest rates.

The fourth-largest US lender reported a profit of $1.87 per share, beating analysts' average expectations of $1.85, according to data compiled by LSEG.

Its net interest income — the difference between what ⁠a lender earns on loans and pays out on deposits — ​rose 5% to $12.52 billion but fell short of expectations of $12.63 billion.

The ⁠bank said NII was impacted by lower interest rates on floating-rate assets, higher deposit costs and a decline in noninterest-bearing deposits.

Following the ‌removal of the $1.95 trillion asset cap ‌last year, Wells has been expanding its balance sheet to regain ground in businesses where it had ceded ⁠market share to larger rivals.

The rapid expansion of its loan book, however, has also ⁠increased the amount of money it has to set aside for potential bad loans, even as the bank has said it was seeing no deterioration in delinquency trends.

Provisions for credit losses increased to $1.03 billion, from $681 million a year earlier.

Revenue came in at $21.87 billion, also falling short of estimates of $22.31 billion.

In a mixed start to big bank earnings, JPMorgan Chase fell short of quarterly profit estimates for the first time in nearly three years while Goldman Sachs and Citigroup posted third-quarter profits above expectations.

CONSUMER ‌SPENDING RESILIENT

The US economy has remained on a firm footing due to heavy AI-led business investments, ​resilient consumer spending and relative stability in the labor market.

Wells has leaned on credit cards and auto loans to grow its consumer loan book, tapping into healthy spending trends.

Businesses and customers have continued to do well despite economic uncertainty and mixed consumer sentiment, CEO Charlie Scharf said in a statement.

Wells' average consumer loan balances grew 4% to about $342 billion, while commercial banking loans climbed 10% to $240.5 billion.

"We're not seeing any change in behavior across either borrowers or depositors that would lead us to believe something's changing in the underlying trends that we've seen now," CFO Mike Santomassimo told reporters on a post-earnings call.

MIXED INVESTMENT BANKING, ​TRADING

Wells has invested heavily in its investment banking and markets businesses, hiring senior bankers and spending more on client financing, trading and other capital-markets activities.

Its markets unit, ‌which provides financing ‌and risk-management services to institutional ⁠investors, was hit by a slowdown in fixed income, currencies, and commodities trading, leading to a 1% revenue fall year-over-year and a 17% decline from the previous quarter.

Client activity slowed "meaningfully" in the last few weeks of September, impacting the unit's results, Santomassimo said.

On the investment banking side, results across Wall Street remained subdued, as market uncertainty amid higher borrowing costs and surging yields spurred companies to take a wait-and-see approach ‌to fundraising and big investments.

The bank raked ​in investment banking revenue of $611 million in the quarter, up 10% from a ‌year earlier. However, it was down ⁠3% sequentially, mirroring a trend ​across peers.

In the quarter, Wells advised Thoma Bravo on its $4 billion-plus deal to take Accelerant private.

(Reporting by Utkarsh Shetti in Bengaluru and Nivedita Balu; Editing ​by Sriraj Kalluvila)

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