Wells Fargo beats profit estimates but misses on revenue and net interest income

Wells Fargo beat Wall Street estimates for third-quarter profit on Tuesday, but lower-than-expected net interest income and revenue sent the fourth-largest U.S. lender’s shares lower. The bank reported a profit of $1.87 per share, exceeding analysts’ average expectations of $1.85, according to data compiled by LSEG.

Despite the profit beat, revenue came in at $21.87 billion, short of estimates for $22.31 billion. Net interest income, the difference between what a lender earns on loans and pays out on deposits, rose 5 per cent to $12.52 billion but fell short of expectations of $12.63 billion. Shares were last down about 1.3 per cent, though one report noted they fell nearly 3 per cent in volatile premarket trading.

Market Volatility and Interest Rates

The earnings report follows a volatile quarter marked by the conflict in Iran, higher oil prices, and a global bond-market selloff. Executives stated that businesses were pressured by the more challenging market environment that emerged in the last few weeks of September and the sharp move upward in interest rates.

CEO Charlie Scharf addressed these headwinds in a statement to analysts. "Inflation and higher interest rates continue to be headwinds, and the longer they persist, the more pressure they can place on both consumers and commercial clients," Scharf said. He added, "While markets have been strong, an unexpected or significant movement could filter through the broader economy."

The bank’s markets unit, which provides financing and risk management services to institutional investors, was hurt by slowed fixed income, currencies, and commodities trading. Revenue for this unit was down 1 per cent year-over-year and off 17 per cent from the previous quarter. CFO Mike Santomassimo noted that client activity slowed "meaningfully" in the last few weeks of September, impacting the unit’s results.

Loan Growth and Credit Provisions

Wells Fargo’s earnings beat was driven by robust growth in loans. Average consumer loan balances grew 4 per cent to about $342 billion, while commercial banking loans climbed 10 per cent to $240.5 billion. The bank has been expanding its balance sheet following the removal of the $1.95 trillion asset cap last year.

However, the rapid expansion of the loan book has increased the amount of money the bank must set aside for potential bad loans. Provisions for credit losses increased to $1.03 billion, up from $681 million a year earlier. Despite this increase, the bank stated it was seeing no deterioration in delinquency trends.

CFO Mike Santomassimo commented on consumer behavior during a post-earnings call. "We’re not seeing any change in behavior across either borrowers or depositors that would lead us to believe something’s changing in the underlying trends that we’ve seen now," Santomassimo said.

Investment Banking and Outlook

Investment banking activity across Wall Street was more subdued due to market uncertainty and higher borrowing costs, which spurred companies to take a wait-and-see approach to fundraising. Wells Fargo raked in investment banking revenue of $611 million in the quarter, up 10 per cent from a year earlier, but down 3 per cent sequentially.

Looking ahead, Santomassimo said he expects fourth-quarter net interest income to grow, boosted by loan and deposit growth and higher interest rates. However, he noted that some of those gains could be offset by the markets business, where higher borrowing costs remain a drag on net interest income.

Why it matters

Wells Fargo’s mixed results highlight the tension between loan growth and market volatility for major U.S. banks. While consumer spending remains resilient, supporting loan balances, higher interest rates and geopolitical instability are pressuring trading revenues and increasing credit loss provisions. The bank’s performance contributes to a broader picture of mixed earnings among large financial institutions, with JPMorgan Chase falling short of profit estimates for the first time in nearly three years, while Goldman Sachs and Citigroup exceeded expectations.

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Sources

• bnnbloomberg.ca: Wells Fargo profit rises on robust loan growth
• centraloregondaily.com: Wells Fargo beats profit estimates, but net interest income, revenue fall short | Consumer | centraloregondaily.com
• 1027wbow.com: Wells Fargo beats profit estimates, NII and revenue fall short | 102.7 WBOW | The Valley's Greatest Hits | Terre Haute, IN

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.