Wells Fargo profit beats forecasts as provisions shrink; shares rise
Adds CFO's comment on interest income 4-7, consumer in paragraph 15 and commercial real estate in paragraph 20
By Noor Zainab Hussain, Manya Saini and Saeed Azhar
Oct 11 (Reuters) -Wells Fargo's WFC.N profit beat analysts' expectations in the third quarter as it set aside less than expected to cover souring loans and predicted its interest income would improve, sending shares 3% higher before the bell on Friday.
The bank, however, forecast a bigger-than-expected 9% drop in 2024 interest income on Friday following the U.S. Federal Reserve's jumbo-sized rate cut in September.
This compares with Wall Street expectations of an 8.4% decline.
Wells Fargo's net interest income could actually benefit from rate cuts because it will pay out less to clients to hang on to their deposits, its CFO Michael Santomassimo said during a media call.
The fourth quarter NII will be in line with the third-quarter, which could be seen as the beginning of a trough of NII, he said.
Santomassimo said rates are coming down on certificates of deposit, promotional savings instruments and on most interest-rate sensitive deposits in its commercial banking business.
"As we continue to see rate cuts, those trends will continue, and that'll be a net positive for NII as we look forward," he said.
The fourth-largest U.S. lender reported third-quarter earnings per share of $1.52, compared with expectations of $1.28, according to data from LSEG.
Wells Fargo's net interest income -- or the difference between what it earns on loans and pays out for deposits -- dropped 11% to $11.69 billion in the quarter.
Analysts on average had predicted $11.87 billion, according to estimates compiled by LSEG.
"Our risk and control work remains our top priority," said Chief Executive Officer Charlie Scharf. "Credit performance was consistent with our expectations, commercial loan demand remained tepid, we saw growth in deposit balances in all of our businesses."
Banks' interest income, which had benefited in recent years as the Fed raised interest rates, is expected to keep declining for the rest of 2024.
The U.S. central bank last month loweredits benchmark policy rate for the first time since 2020, cutting it by 50 basis points. Policymakers have projected another half of a percentage point reduction by the end of this year.
The rate cut was followed by top banks lowering prime lending rates, which will likely shrink their interest income. Banks have also tightened lending standards this year.
Santomassimo said consumer activity and spending remained quite strong.
Wells Fargo's revenue declined 2% to $20.37 billion in the third quarter.
The bank's loans to borrowers fell to $910.3 billion versus $943.2 billion a year earlier.
Loan demand has been subdued as higher interest rates deterred commercial and consumer borrowers. At the same time, banks have had to compete for deposits by paying clients more.
Wells Fargo set aside $1.07 billion in provisions to cover souring loans. That compared with $1.20 billion a year earlier.
Santomassimo said office remains the area of concern in the commercial real estate sector and expects additional losses in the segment over time.
JPMorgan Chase's JPM.N profit dropped in the third quarter as a bigger provision for potential loan defaults offset gains from investment banking, the bank said on Friday.
Executives at top lenders have said that U.S. consumers remain resilient despite pockets of stress and higher loan delinquencies among lower-income households.
Wells Fargo is also reportedly doubling down on efforts to lift a $1.95 trillion asset cap imposed by the Federal Reserve that prevents the bank from growing until regulators deem it has fixed problems dating back to the 2016 fake accounts scandal.
In September, a U.S. banking regulator found its safeguards against money laundering and other illegal transactions were too lax and restricted its ability to expand in risky businesses.
The asset cap curtails Wells Fargo's ability to take in more deposits and expand its trading business, two potential growth areas for the bank, CEO Scharf said earlier this year.
It still has eight regulatory punishments, called consent orders, that it is working to address.
Reporting by Manya Saini and Noor Zainab Hussain in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen, Sriraj Kalluvila and Nick Zieminski
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अस्वीकरण: XM Group के सत्व केवल निष्पादन वाली सेवा और हमारी ऑनलाइन व्यापार सुविधा में पहुँच प्रदान करते हैं, ताकि व्यक्ति वेबसाइट पर या उसके जरिए उपलब्ध सामग्री को देख सके और/या उसका उपयोग कर सके। इसका प्रयोजन इसे बदलना या विस्तार देना नहीं है, न ही वह इसे बदलता या विस्तार देता है। इस तरह की पहुँच हमेशा ही निम्नलिखित के अधीन रहेगी: (1) नियम और शर्तें; (2) जोखिम चेतावनियाँ; और (3) पूर्ण अस्वीकरण। इसलिए ऐसी जानकारी सामान्य सूचना से अधिक कुछ भी नहीं है। विशेष रूप से, कृपया इससे अवगत रहें कि हमारी ऑनलाइन व्यापार सुविधा की सामग्रियाँ न तो किसी चीज का अनुरोध करती हैं, न ही वित्तीय बाजारों में प्रवेश करने की पेशकश ही करती हैं। किसी भी वित्तीय बाजार में व्यापार करने के साथ आपकी पूँजी को उल्लेखनीय जोखिम है।
हमारी ऑनलाइन व्यापार सुविधा में प्रकाशित सभी सामग्रियाँ शैक्षणिक/सूचनात्मक प्रयोजनों मात्र के लिए हैं, और इनमें वित्तीय, निवेश टैक्स या व्यापार सलाह और सुझाव नहीं हैं - न ही ऐसा समझना चाहिए कि इनमें ये सब हैं; न ही इनमें हमारी व्यापार कीमतों का अभिलेख है; न ही इनमें किसी वित्तीय उपकरण में लेन-देन करने का निमंत्रण या अनुरोध है; न ही ये आपको अवांछित वित्तयी प्रोमोशन पेश करती हैं।
इस वेबसाइट में मौजूद कोई भी तृतीय पक्षीय सामग्री, तथा XM द्वारा तैयार की गई सामग्रियाँ, जैसे: अभिप्राय, समाचार, अनुसंधान, विश्लेषण, कीमतें और अन्य सूचनाएँ या तृतीय पक्षों की साइटों के लिंक, "जैसा-है-वैसा" के आधार पर बाजार के बारे में सामान्य टिप्पणी के रूप में उपलब्ध कराई गई हैं, और वे निवेश हेतु सलाह नहीं हैं। जिस हद तक कीसी सामग्री को निवेश अनुसंधान मान लिया जाता है, उस हद तक आपको ध्यान में रखना होगा और इसे स्वीकार करना होगा कि वह सामग्री इस उद्देश्य से और निवेश अनुसंधान की स्वतंत्रता को बढ़ावा देने के लिए कानूनी आवश्यकताओं के मुताबिक, तैयार नहीं की गई है, और इसलिए उसे प्रासंगिक कानूनों और विनियमों के तहत विपणन संप्रेषण माना जाएगा। कृपया सुनिश्चित करें कि आपने गैर-आश्रित निवेश के बारे में हमारी सूचना को पढ़ और समझ लिया है। पीछे दी गई जानकारी के बारे में अनुसंधान और जोखिम चेतावनी यहाँ उपलब्ध है।
