Wells Fargo profit falls as customers cash in on higher interest rates
Wells Fargo outperformed market expectations in the first quarter of the year despite reporting a hefty fall in interest income.
Profit at Wells Fargo fell in the first quarter of the year as the bank reported a hefty fall in interest income reflecting the need to pay out more in interest to attract depositors.
Profit at the Wall Street giant fell to $4.6bn from just under $5bn a year earlier, largely reflecting the impact of higher expenses.
Revenue remained largely flat in the quarter, but this obscured the changing contribution to the lenders’ income. Net interest income fell eight per cent in the quarter as higher interest rates put up funding costs.
In its results, the bank noted the impact of “customer migration to higher yielding deposit products”.
Lending also slipped two per cent compared to last year, with all divisions of the bank reporting lending had decreased.
Non-interest income, in contrast, jumped 17 per cent thanks to strong results from its venture capital business, which benefited from “lower impairments, higher investment banking fees, an increase in asset-based fees in Wealth and Investment Management”.
The bank’s provision for credit losses – closed watched for what it says about the health of the American economy – were significantly lower than the same quarter last year, dropping to $938m from $1.2bn last year.
This reflected “a decrease in the allowance for credit losses driven by commercial real estate and auto loans, partially offset by a higher allowance for credit card loans”, the bank said.
Shares in the bank were up a little over one per cent in pre-open trading.
“Our solid first quarter results demonstrate the progress we continue to make to improve and diversify our financial performance,” chief executive Charlie Scharf commented.
“The investments we are making across the franchise contributed to higher revenue versus the fourth quarter as an increase in noninterest income more than offset an expected decline in net interest income.”
A key focus for investors in this round of results is the impact of changing views about interest rates. Markets anticipate many fewer rate cuts than at the beginning of the year, which should mean banks can generate more profit.
