Written by Syed Azhar, Noor Zainab Hussain, Manya Saini
(Reuters) – Wells Fargo's first-quarter profit fell 7%, beating analysts' expectations as it paid more to hold customer deposits amid lower demand from borrowers. .
The company's stock price fell 2.1%, swinging between profits and losses. The volatility reflects growing uncertainty among investors about how much money banks will earn in interest payments in the coming months.
Wells Fargo's net interest income (NII), the difference between income earned on loans and payments made on deposits, could fall by 7% to 9% this year, the paper said. NII's sales fell 8% to $12.23 billion in the first quarter.
“NII is certainly difficult to predict today, given the volatility we're seeing in various data points and some of the uncertainty around how customers will behave.” Michael, Head of Finance Santomassimo told reporters during a conference call.
CFRA analyst Alexander Yokum wrote in a note that the guidance is “conservative” and that Wells Fargo could generate additional profits if interest rates remain high for an extended period of time. He upgraded his rating on the stock from “hold” to “buy.”
Wells Fargo's adjusted earnings per share were $1.26, according to LSEG data, compared with analysts' expectations of $1.11, helped by nearly 5% growth in corporate and investment banking sales. exceeded.
Bank of America analyst Ebrahim Poonawalla reiterated his buy rating on the stock, saying the results and outlook support a “constructive view.”
Changes in the outlook for US interest rates are an important factor in determining banks' future profits. U.S. consumer prices rose more than expected in March, leading to widespread expectations in financial markets that the Federal Reserve would postpone interest rate cuts until September.
Rising interest rates boosted lenders' profits by making more money available for interest payments, but the benefits faded in the first quarter of 2024.
Chief Financial Officer Santomassimo told analysts that NII's forecast is based on the expectation of three rate cuts this year.
Rising interest rates have also raised costs for banks, forcing them to pay more to keep deposits from customers looking for higher yields.
Tight monetary policy could also reduce demand from borrowers and dampen economic activity, including Wall Street trading.
Wells Fargo also paid $284 million into Federal Deposit Insurance Corporation funds that were depleted last year after the failures of three regional financial institutions.
The bank said average loan size decreased by $20.6 billion, or 2%, from a year ago due to declines in most loan categories.
Rival Citigroup Inc.'s profit fell as it increased spending on retirement benefits and set aside money to replenish the government's deposit insurance fund, while JPMorgan Chase & Co.'s 2024 NII outlook fell short of analysts' expectations.
Wells Fargo reduced its allowance for credit losses on office loans by $76 million in the first quarter to $2.4 billion.
“Our portfolio remains very healthy,” Santomassimo said. He added that the bank is less concerned about the vulnerability of multifamily buildings and does not have significant exposure to rent-stabilized properties.
New York Community Bank's unexpected fourth-quarter loss fueled industry concerns about weakness in commercial real estate, which has expanded beyond offices to multifamily housing of five or more units.
Relaxing monitoring
While credit card financing was a bright spot, auto financing suffered a sharp 23% decline in the quarter.
The bank operates under a $1.95 trillion asset cap that prevents it from growing until regulators determine that the problems stemming from the fake account scandal have been resolved. Investors have speculated about the possibility of lifting growth restrictions, but executives continued to insist the decision rests with regulators.
After the Office of the Comptroller of the Currency (OCC) ended its 2016 penalties in February, lenders still had eight outstanding consent orders.
“We reached an important milestone in the first quarter by announcing the lifting of a consent order issued by the OCC in 2016 regarding sales practice misconduct,” CEO Charlie Scharf said in a statement. Ta.
He added: “The remaining risk and management work remains our top priority and we will not be satisfied until all work is completed.”
Mr. Scharf became CEO in 2019, becoming the fourth person to lead Wells Fargo since the scandal first broke. He has worked to turn around the lender, which has racked up billions of dollars in lawsuits and regulatory fines, cutting costs and going out of business.
Overall, non-interest expenses rose 5% in the quarter, partly due to the cost of replenishing the government deposit insurance fund, the bank said.
Wells Fargo stock is up about 14.8% so far this year, compared with a 7.1% rise in the S&P 500 Bank Index, which tracks large financial institutions.
(Reporting by Noor Zainab Hussain and Manya Saini in Bangalore and Saeed Azhar in New York; Editing by Ranan Nguyen, Sriraj Kalvilla and Nick Ziminski)
