By Noor Zainab Hussain, Saeed Azhar and Manya Saini
(Reuters) – Wells Fargo’s profit fell in the second quarter and the bank missed analysts’ estimates for interest income tied to rising deposit costs amid intense competition for customers’ money, sending its shares down more than 6 percent.
Net interest income (NII) – the difference between what a bank earns on loans and what it pays out on deposits – fell 9% to $11.92 billion. Analysts on average had expected $12.12 billion, according to LSEG data.
The NII could fall by 7 to 9 percent this year, he reiterated on Friday.
“At this point in the year, we expect that number to be in the upper half of that range, about 8% to 9% lower,” Wells Fargo Chief Financial Officer Michael Santomassimo told reporters on an earnings call.
The increase in net interest income was part of investors’ “bullish thesis” at the start of the quarter, so management’s new guidance for NII is likely to put pressure on the stock, Citigroup analyst Keith Horowitz said in a note.
Average deposit costs jumped to 1.84% in the second quarter from 1.13% a year earlier, the bank said.
Banks are having to pay more to retain customers seeking better returns while dealing with the consequences of higher and more persistent interest rates as borrowers are reluctant to take out new loans.
“Rate expectations continue to change… We’ll hopefully see how that plays out and how that translates into actions,” Santomassimo said.
Net profit fell to $4.91 billion for the three months ended June 30 from $4.94 billion a year earlier.
The lender also said it expects noninterest expenses in 2024 to be about $54 billion, up from its previous forecast of about $52.6 billion.
Wells Fargo’s profit, however, beat expectations in the second quarter, boosted by higher investment banking fees.
On a per-share basis, the company reported profit of $1.33, compared with LSEG’s estimate of $1.29.
The fourth-largest U.S. bank said its net losses — or the amount of loans that are unlikely to be recovered — for commercial real estate (CRE) were $271 million, or 74 basis points of average loans, driven primarily by the office segment.
The bank has worked to reduce its exposure to the commercial real estate sector over the past year as the sector’s woes have worsened. While it has increased provisions to cover potential defaults, particularly in the office sector, executives have said commercial real estate portfolios remain manageable.
INVESTMENT BANK BOOST
Investment banking was a bright spot for the bank in the second quarter. Rival JPMorgan Chase also reported a 25% rise in second-quarter profit on Friday, boosted in part by higher investment banking fees.
Citigroup’s profit was boosted by a 60% rise in investment banking revenue in the second quarter.
“We continued to see growth in our fee-based revenue, offsetting an expected decline in net interest income,” Wells Fargo CEO Charlie Scharf said in a statement.
Investment banking revenue jumped 38% to $430 million for the bank.
Under Scharf, Wells Fargo has strengthened its investment banking and trading businesses, hiring some top executives from competitors.
Global mergers and acquisitions volumes reached $1.6 trillion in the first half of the year, up 20% from a year earlier, according to data from Dealogic. Equity capital market volumes increased 10% over the same period.
Yet Wells Fargo remains hampered by a $1.95 trillion asset cap that prevents it from growing until regulators believe it has resolved problems stemming from a fake accounts scandal.
The bank still has eight open consent orders after the U.S. Office of the Comptroller of the Currency terminated a 2016 sanction in February.
(Reporting by Noor Zainab Hussain and Manya Saini in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen and Sriraj Kalluvila)
News Source : finance.yahoo.com
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