Update: This article includes new comments from Wells Fargo’s earnings release and analyst commentary on the bank’s performance.
Deposit competition that has weighed on Wells Fargo & Co.’s profits appears to be easing, megabank executives said Friday, and the optimistic assessment bodes well for other banks in the industry.
Pressure remains evident on the bank’s earnings, with net profit falling to $5.1 billion for the three months ended Sept. 30 from $5.8 billion a year earlier. But Chief Financial Officer Michael Santomassimo pointed to “stabilization” after the Federal Reserve’s interest rate cuts and said Wells Fargo was able to reduce payments to depositors without much resistance. Ta.
“We believe we are approaching a trough,” Santomassimo said Friday.
Wells Fargo’s deposit costs continued to rise, but at a slower pace than before as fewer customers turned to more expensive deposit options. The bank was also able to lower the maximum interest rate it pays depositors, including by lowering promotions on consumer certificates of deposit.
Wells Fargo’s net interest income is expected to decline again this year, with executives predicting a 9% decline. Net interest income for the third quarter was $11.7 billion, down from $13.1 billion in the year-ago period.
But Wells Fargo appears to be nearing an “inflection point,” with investors already expecting a significant cut in its net interest income outlook, Edward Jones analyst Kyle Saunders told clients. I mentioned it in my notes.
“Overall, we believe WFC is gaining momentum,” Sanders wrote in the stock quote, referring to WFC.
Higher fees at the $1.9 trillion-asset bank also cushioned the blow from an expected decline in net interest income. Wells Fargo’s stock price fell nearly 6% after the company beat analysts’ expectations, with diluted net income of $1.42 per share, beating expectations of $1.28 per share. rose.
The bank beat expectations despite recording a net loss of 10 cents per share due to the repositioning of its investment securities portfolio. The move reflects other banks replacing low-yielding bonds they bought when interest rates were low with new bonds that pay out more over time.
Noninterest income rose to $8.7 billion from $7.8 billion a year ago, driven by Wells Fargo’s venture capital investments and investment banking fees, which the company has overhauled in recent years.
Provisions for credit losses decreased 11% year over year to $1.1 billion, with lower provisions across most loan portfolios, partially offset by higher credit card loan provisions due to higher balances, the bank said. Ta.
Chief Executive Officer Charlie Scharf told analysts that both consumer and commercial customers “remain resilient,” but that the office commercial real estate market remains depressed. I warned you.
Scharf, who joined the bank in late 2019 to overhaul it, said the company’s “revenue profile is very different than when I first joined.”
He said the fee business provides a more diversified revenue stream, as does the company’s investment in growing its credit card business. Wells Fargo recently launched two cards in partnership with travel website Expedia. Other notable highlights include a multi-year auto financing partnership with Volkswagen.
The results come weeks after Wells Fargo faced enforcement action from banking regulators over flaws in the company’s defenses against money laundering. Since then, some investors have worried that Wells Fargo, which appeared to have a good relationship with regulators earlier this year, may be further away from being freed from regulatory-imposed asset caps. are.
Bloomberg News reported last month that Wells Fargo had submitted an external review of its revamped practices to the Federal Reserve, a milestone in the company’s efforts. The Fed imposed an asset cap in 2018 following the bank’s consumer abuse scandal.
That schedule far exceeds what the now-ousted executives once expected. But investors are salivating at the prospect that the Scharf-led turnaround is nearly complete and could accelerate the bank’s growth. Partly due to such expectations, the bank’s stock price has risen more than 20% this year.
Mr. Scharf declined to comment on the timeline for regulatory action, telling one analyst that the 2018 order was “very easy to read” and explained what Wells Fargo would need to do to satisfy regulators. He said it shows.
“When it’s done, we’ll know about it and you’ll know about it,” Scharf said, adding that the company is “very focused on getting the job done and satisfied with our ability to get it done.” I am doing it,” he added.
