Wells Fargo has released information on its results of operations for the second quarter of the current year.
The mentioned data indicates that the specified financial institution did not meet analysts’ expectations regarding interest income. The corresponding forecasts did not coincide with reality, which turned out to be less optimistic and less effective in a certain sense, due to the higher cost of deposits formed against the background of increased competition for customer money. The results, which turned out to be worse than preliminary expectations, naturally had an impact on the value of shares of a financial institution. After information on Wells Fargo’s results of operations for the second quarter of the current year was published, the lender’s securities on the premarket turned out to be on a downward trajectory having demonstrated a drop of more than 5%.
The net interest income of a financial institution for the second quarter of the current year was fixed at $11.92 billion. This indicator decreased by 9% year-on-year. It is worth noting that net interest income reflects the difference between what a lender earns on loans and what pays out for deposits. Analysts surveyed by LSEG believed that the mentioned figure for the second quarter of the current year would reach $12.12 billion.
Wells Fargo’s finance chief, Michael Santomassimo, while talking to reporters during the earnings call, admitted the probability that net interest income will show a decrease of about 8-9% this year.
Citigroup analyst Keith Horowitz said in a note that the growth of the mentioned indicator in the last quarter was partly due to the optimistic mood of investors. In a sense, moral certainty in this case has become what can be described as a platform for an upward trajectory. The expert also suggests that new comments from the management of a financial institution regarding the prospects of the dynamic of performance indicators in the short term may transform into a pressure factor on the value of the bank’s securities. In this case, the new guidance of net interest income is meant.
The average cost of deposits of a financial institution in the second quarter of the current year increased to 1.84%. It is worth noting that a year earlier the corresponding figure was 1.13%.
In the context of the current realities, financial institutions should pay more, since the opposite behavior tactics are likely to generate a negative result in the form of a decrease in the number of the customer base. Currently, the mentioned clients are focused on higher yields. In the context of these priorities, banks should increase their deposit payments. Also, financial institutions are currently actively taking measures aimed at countering the effects of high interest rates resulting from tightening monetary policy as part of the fight against inflation. The continued high cost of borrowing encourages borrowers to make decisions about rejecting new loans.
Michael Santomassimo says that expectations for rates continue to change. So far, there is no definitive understanding of which monetary policy concept will be implemented in the United States before the end of the current year. Easing of the relevant concept is a realistic but not guaranteed scenario.
Wells Fargo’s net profit for April-June of the current year was fixed at $4.91 billion. The dynamic of this indicator demonstrated a downward movement. In the second quarter of last year, the financial institution’s net profit amounted to $4.94 billion. In this case, there is no critical drop in the indicator, which, however, does not negate the objective fact of a negative dynamic.
The total revenue of the bank for the last quarter amounted to $20.68 billion. In the same period of 2023, this figure reached $20.53 billion.
Wells Fargo expects noninterest expenses to amount to about $54 billion in the current year. It is worth noting that in the previous version of the forecast for the dynamic of this indicator in the year 2024, the amount of $52.6 billion was mentioned.
At the same time, the lender’s earnings per share exceeded forecasts. This indicator was $1.33. At the same time, the LSEG forecast provided that the mentioned figure would be $1.29.
Wells Fargo, currently the fourth largest bank in the United States, also reported that its net charge-offs on commercial real estate deals for the second quarter of 2024 were fixed at $271 million, equivalent to 74 basis points of average loans. It is worth noting that this result was achieved mainly due to the office segment. Net charge-offs are an indicator reflecting the amount of loans that are most likely not to be recovered.
Over the past year, the financial institution has been making efforts to reduce the risks associated with commercial real estate. The corresponding vector of the bank’s activity was largely because the situation in the mentioned segment of the property market deteriorated. The financial institution has increased provisions to cover potential defaults, particularly in office space. The bank’s executives claim that commercial real estate portfolios continue to be manageable.
Investment banking has become for Wells Fargo what can be symbolically described as a bright ray against the background of the rest of the results for the second quarter of the current year. The income of a financial institution from corresponding activities for the mentioned period reached $430 million. This indicator increased by 38% year-on-year.
Wells Fargo Chief Executive Officer Charlie Scharf says that the lender is still seeing an increase in its fee-based revenue offsetting an expected decline in net interest income Under the leadership of Mr. Scharf, the financial institution has expanded its investment banking and trading activities. Moreover, the lender has hired specialists who were employees of rival banks in the past.
According to the Dealogic platform, in the first half of the current year, the volume of deals on mergers and acquisitions worldwide reached $1.6 trillion. This indicator increased by 20% year-on-year. During the same period, the volume of the equity capital market increased by 10%. At the same time, Wells Fargo is still limited by the capitalization of assets worth $1.95 trillion. This circumstance is a factor restricting the growth opportunities of a financial institution. The corresponding barrier to the bank’s path will be a reality until regulators recognize that the lender has eliminated the problems associated with the fake accounts scandal.
Wells Fargo has eight open consent orders after the US Office of the Comptroller of the Currency in February terminated a 2016 punishment.
As we have reported earlier, Wells Fargo CEO Says About Significant Investment-Bank Opportunity.
