Wells Fargo (WFC, Financial) reported its third-quarter financial results, showcasing a profit that exceeded analyst expectations. This was primarily driven by a surge in investment banking fee income, mitigating the impact of declining loan revenue due to lower interest rates. Revenue reached $20.4 billion, slightly below the $20.5 billion average analyst forecast, marking a 2.4% year-over-year decline. Following the earnings release, the stock saw a 4% pre-market increase.
The bank's investment banking fees rose 37% to $672 million, boosting non-interest income by 12% to $8.7 billion. However, the net profit fell 11% to $5.1 billion, or $1.42 per share, due to a $447 million loss on debt securities. Adjusted earnings would have been $1.52 per share, surpassing the $1.28 expected by analysts.
Wells Fargo projects a 9% drop in full-year net interest income from the $52.4 billion reported in 2023, maintaining its earlier guidance. Non-interest income is also expected to decrease by about 9%, while non-interest expense guidance remains unchanged at $55.4 billion.
CEO Charlie Scharf noted strategic investments in various businesses while reducing or selling others have significantly altered the bank's profitability compared to five years ago. Under Scharf's leadership, the investment banking segment has grown, with strong fee income anticipated to offset adverse net interest income effects during the first nine months of 2024.
Wells Fargo, alongside JPMorgan Chase (JPM), initiated the earnings season for major U.S. banks, with the latter also releasing its Q3 results. Competitors such as Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), and Morgan Stanley (MS) are expected to announce their earnings in the coming week. These reports provide new insights into how the largest U.S. financial firms are faring amid the Federal Reserve's efforts to ensure a soft economic landing.
Wells Fargo's net interest income, the primary revenue source from loans minus deposit income, totaled $11.7 billion, falling short of the $11.9 billion analyst estimate and down 11% year-over-year. This reflects the diminishing benefits of persistent high-interest rates.
Wealth management income grew both sequentially and annually, with wealth and investment management income reaching $3.88 billion, up 1% from the previous quarter and 5% year-over-year. Total client assets increased to $2.29 trillion, a 4% sequential rise and an 18% year-over-year increase.
The bank wrote off $1.1 billion in loans, below the $1.3 billion analyst forecast and lower than both the second quarter's $1.24 billion and the $1.22 billion from the prior year. The bank's Chief Financial Officer, Mike Santomassimo, mentioned last month that overall credit performance was strong, with commercial real estate loans being a source of "actually commercial real estate-related" losses. Net loan charge-offs were 0.49% of average total loans, down from 0.57% in the previous quarter but higher than 0.36% in the prior year.
Wells Fargo remains under the Federal Reserve's asset cap, limiting its balance sheet to the size at the end of 2017. Recent developments include the submission of a third-party review for Fed evaluation, marking a new phase in the bank's prolonged efforts to lift these restrictions. However, the bank also faced new enforcement from the Office of the Comptroller of the Currency, demanding stronger anti-money laundering systems and compliance with international sanctions.
