TLDR:
- Wells Fargo’s Q3 profit fell due to lower interest income
- Net income dropped to $5.11 billion from $5.78 billion a year ago
- Net interest income declined 11% to $11.69 billion
- Consumer bank revenue decreased 5% to $9.124 billion
- Wells Fargo faces ongoing regulatory challenges, including an asset cap
Wells Fargo, the fourth-largest US lender, reported a decrease in profit for the third quarter of 2024, primarily due to lower interest income and ongoing regulatory challenges. The bank’s net income fell to $5.11 billion, down from $5.78 billion in the same period last year.
The decline in profit can be attributed to several factors. Net interest income, which is the difference between what the bank earns on loans and pays out for deposits, dropped 11% to $11.69 billion. This figure fell short of analysts’ expectations, who had predicted $11.87 billion according to estimates compiled by LSEG.
The bank’s consumer division also experienced a downturn, with revenue falling 5% to $9.124 billion. Consumer, small and business banking revenue decreased to $6.222 billion from $6.546 billion, driven by lower deposit balances and customer migration to higher-yielding products.
While home lending saw a slight increase, rising to $842 million from $840 million a year ago due to higher mortgage banking fees, other areas of consumer banking faced challenges. Credit card revenue dipped 2% to $1.471 billion, and auto revenue plummeted 24% due to lower loan balances and loan spread compression.
The decline in interest income is part of a broader trend affecting the banking industry. Banks’ interest income, which had benefited from the Federal Reserve’s interest rate hikes in recent years, is expected to continue declining for the rest of 2024.
The US central bank recently lowered its benchmark policy rate for the first time since 2020, cutting it by 50 basis points, with projections for another half of a percentage point reduction by the end of the year.
This rate cut has led top banks, including Wells Fargo, to lower their prime lending rates, which will likely further shrink their interest income. Additionally, banks have tightened lending standards this year, potentially impacting their profits in the coming months.
Wells Fargo also faces ongoing regulatory challenges. The bank is reportedly intensifying efforts to lift a $1.95 trillion asset cap imposed by the Federal Reserve.
This cap, which prevents the bank from growing until regulators deem it has fixed problems dating back to the 2016 fake accounts scandal, has curtailed Wells Fargo’s ability to take in more deposits and expand its trading business.
In September, a US banking regulator found that Wells Fargo’s safeguards against money laundering and other illegal transactions were inadequate, further restricting its ability to expand in risky businesses. The bank still has eight regulatory punishments, called consent orders, that it is working to address.
Despite these challenges, Wells Fargo’s shares were up over 3% before the bell on Friday, indicating that investors may be finding some positive signals in the bank’s performance or outlook.
On a per-share basis, Wells Fargo’s quarterly profit was $1.42, compared to $1.48 a year earlier. This decrease reflects the overall decline in the bank’s financial performance for the quarter.
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