Wells Fargo interest income misses estimates, shares fall

A Wells Fargo Bank is shown in Charlotte, North Carolina

Wells Fargo’s interest income fell short of Wall Street expectations in the first quarter on Tuesday, as a string of rate cuts from the U.S. Federal Reserve dragged down loan yields.

While rate cuts can boost borrowing and reduce deposit ‌costs over time, they tend to pressure interest income in the near term.

Net interest income (NII) — the difference between earnings on loans and payments on deposits — came in at US$12.1 billion in the quarter from a year earlier, compared with analysts’ average estimates of $12.3 billion, according to data compiled by LSEG.

NII has been a key focus for Wall Street in recent quarters as investors assess Wells Fargo’s progress on growing its interest income after the lifting of the asset cap.

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Shares of the San Francisco, California-based company fell 2.2 per cent in premarket trading. The stock had slipped seven per cent so far this year, as of last close.

The lifting of a seven-year, $1.95 trillion asset cap on Wells Fargo last year has allowed the bank to expand its balance sheet and pursue stronger growth in all of its core businesses.

“While markets have been volatile, we still see continued resiliency in the underlying economy, and the financial health of the consumers and businesses we serve remains strong, though the impact of higher oil prices will likely take some time to materialize,” CEO Charlie Scharf said in a statement.

The bank’s markets revenue surged 19 per cent to $2.17 billion in the quarter ended March 31 from a year earlier.

Market volatility tends to be a boon for trading desks at large banks, as investors increasingly rejig their portfolios to hedge against risks.

Wells Fargo benefited as stock markets navigated a tough landscape in the first quarter. Fears around artificial intelligence disrupting software companies and private credit worries unnerved investors.

Market jitters intensified in March with the outbreak of the U.S.–Israeli war with Iran. Concerns over oil supply disruptions from a blockage of the Strait of Hormuz, which carries one-fifth of global oil, stoked stagflation fears.

Wells Fargo’s net profit came in at $5.25 billion, or $1.60 per share, compared with $4.89 billion, or $1.39 per share, the company reported a year earlier.

Analysts had expected a profit of $1.58 per share in the reported quarter.

Elsewhere, rival JPMorgan Chase on Tuesday reported a 13 per cent rise in first-quarter profit on Tuesday, as record gains in trading due to volatility in markets and a pickup in dealmaking lifted results.

Private credit in spotlight

The high-profile bankruptcies of U.S. auto parts supplier First Brands and car dealership Tricolor last year have brought into the spotlight Wall Street banks’ exposure to so-called non-depository financial institutions (NDFIs) such as private equity and private credit managers.

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Concerns around private credit have deepened in recent months, as a wave of negative headlines drew intense scrutiny to the asset class that has expanded rapidly over the past decade.

Wells Fargo had $210.2 billion in so-called financials, except “banks loan outstanding,” as of March 31, according to its presentation.

Headcount continues to fall

Wells Fargo had 200,999 employees at the end of March, compared with 205,198 as of December 31. Its headcount has fallen every quarter since late 2020.

Under Scharf’s leadership, Wells Fargo has streamlined its workforce, prioritizing efficiency and cost cuts to fund long-term growth initiatives.

Scharf said last year that Wells Fargo will keep trimming headcount as the bank focuses on becoming more efficient, adding that artificial intelligence presents a major opportunity to boost productivity.

(Reporting by Arasu Kannagi Basil in Bengaluru and Nivedita Balu in Toronto; Editing by Shinjini Ganguli)