Friday pre-open, Wells Fargo & Co (WFC.US) reported its second-quarter earnings. The bank reported Q2 revenue of $20.69bn, up 1% YoY, beating expectations; net income of $4.91bn, down 1%; EPS of $1.33, beating expectations of $1.29. Net interest income of $12.023bn, down 9%, missing expectations.
Second-quarter provision of $1.24bn, though higher than the first three months of the year, still beat analyst expectations of $1.28bn.
After reporting higher-than-expected expenses in Q2, Wells Fargo warned that it would not be able to cut costs as quickly as previously expected.
Expenses rose 2% YoY to $13.3bn, compared with analyst expectations of a 0.2% YoY increase.
The bank now expects non-interest expenses to fall 2.8% this year to $54bn, up from its previous forecast of $52.6bn. Wells Fargo said expenses rose due to higher-than-expected compensation expenses, increased operating losses and client remediation efforts implemented earlier this year.
Wells Fargo chief executive Charlie Scharf said in a statement: “Our risk and control work remains our top priority, and we will continue to execute our strategy to better serve our customers and deliver higher returns over time.”
Cost-cutting has been a key part of Scharf’s turnaround plan since he took over the bank, but has often been hampered by massive losses from regulatory penalties. Last month, Wells Fargo chief financial officer Mike Santomassimo said the bank had “hundreds of different projects” to improve its operating efficiency.
On the income side, Wells Fargo’s net interest income fell to its lowest level in two years, the latest sign of the end of the US banking industry’s run of high interest rates.
Its rivals JPMorgan Chase & Co (JPM.US) and Citigroup Inc (C.US) also reported quarterly earnings on Friday. Taken together, the results are expected to show that after years of profit growth driven by high interest rates, large banks’ net interest income is now under pressure as they face sluggish loan demand and pressure from customers to pay more for deposits.
Wells Fargo still expects net interest income to fall 7% to 9% from $52.4bn in 2023, but said it expects net interest income to be at the lower end of that range.
After the earnings report, Wells Fargo shares were down more than 6% pre-open, JPMorgan shares were down more than 1% and Citigroup shares were down nearly 1%. JPMorgan’s second-quarter EPS missed expectations.