Wall Street big banks off to a rough start! Wells Fargo Q2 net interest income drops to a two-year low, rate hike "dividend" dissipates
Wells Fargo, a major Wall Street bank, announced its second-quarter performance. Revenue was $20.69 billion, a 1% year-on-year increase, while net profit was $4.91 billion, a 1% year-on-year decrease. Net interest income was $11.923 billion, a 9% year-on-year decrease, falling short of expectations. Wells Fargo warned that it will not be able to cut costs at the expected pace. Expenses increased by 2% to $13.3 billion. Wells Fargo expects non-interest expenses to decrease by only 2.8% this year, to $54 billion, higher than forecasted. The bank's net interest income has dropped to the lowest level in two years, marking the latest sign that the U.S. banking industry is no longer benefiting from high interest rates
According to the Zhitong Finance APP, before the US stock market opened on Friday, Wells Fargo (WFC.US) announced its second-quarter performance. The data shows that Wells Fargo's Q2 revenue was $20.69 billion, a year-on-year increase of 1%, better than market expectations; net profit was $4.91 billion, a year-on-year decrease of 1%; earnings per share were $1.33, higher than the market's expected $1.29. Net interest income was $11.923 billion, a year-on-year decrease of 9%, below expectations.
Provisions for credit losses in the second quarter were $1.24 billion, although higher than the previous three months of this year, it was still better than analysts' expected $1.28 billion.
After announcing that second-quarter expenses were higher than expected, Wells Fargo warned that it would not be able to cut costs at the pace previously anticipated.
The data shows that second-quarter expenses increased by 2% to $13.3 billion. In comparison, analysts had previously expected an increase of 0.2%.
The bank currently expects non-interest expenses to decrease by only 2.8% to $54 billion this year, higher than the previous forecast of $52.6 billion. Wells Fargo stated that the reason for the increase in expenses was higher-than-expected compensation expenses, a significant increase in operating losses, and customer remediation measures implemented in the first half of the year.
Wells Fargo CEO Charlie Scharf stated in a release, "Our risk and control work remains our top priority, and we will continue to execute our strategy to better serve our customers and generate higher returns over time."
Since Scharf took over Wells Fargo, cost-cutting has been a key part of its turnaround plan, but over the years, these efforts have often been thwarted by massive losses due to regulatory sanctions. Last month, Wells Fargo CFO Mike Santomassimo stated that the company has "hundreds of different projects" aimed at improving Wells Fargo's operational efficiency.
In terms of profitability, Wells Fargo's net interest income in the second quarter fell to the lowest level in two years, the latest sign that the US banking industry is no longer benefiting from sustained high interest rates.
Competitors JPMorgan Chase (JPM.US) and Citigroup (C.US) also announced quarterly results on Friday. Overall, these results are expected to show that after years of profit growth driven by high interest rates, large banks are now facing pressure on net interest income as they deal with subdued loan demand and the pressure to pay more interest on deposits.
Wells Fargo still expects full-year net interest income to decline by 7% to 9% from $52.4 billion in 2023. However, the bank stated that it expects net interest income to be at the lower end of that range.
After the financial report was released, Wells Fargo fell more than 6% in pre-market trading, JPMorgan Chase fell more than 1%, and Citigroup fell nearly 1%. It is reported that JPMorgan Chase's Q2 earnings per share were below expectations