Wells Fargo’s (WFC.N) profit exceeded analysts’ expectations in the third quarter as it set aside less money than anticipated to cover potential loan losses. The bank also predicted that its interest income would stabilize, boosting shares by nearly 6% on Friday.
Top banking executives have stated that U.S. consumer finances remain strong, supported by a solid job market and rebounding capital market activity.
“The U.S. economy remains strong,” Wells Fargo CEO Charlie Scharf told analysts, noting that slowing inflation and a resilient labor market are helping consumer spending. Scharf also mentioned that robust company balance sheets are driving consumption and investment.
In the near term, Wells Fargo forecasted a 9% decline in net interest income (NII) for 2024 — slightly more pessimistic than analysts’ expectations of an 8.4% drop. This follows the Federal Reserve’s recent rate cuts.
However, Chief Financial Officer Michael Santomassimo said that the bank’s NII could benefit from further rate cuts, as it would allow Wells Fargo to pay less to retain deposits. He predicted NII could stabilize in the fourth quarter, potentially forming a trough.
Santomassimo added that rates on certificates of deposit, promotional savings products, and interest-rate-sensitive commercial deposits are beginning to decrease.
“As we continue to see rate cuts, those trends will continue, and that’ll be a net positive for NII moving forward,” he said, explaining that the bank will pay less to depositors while holding onto their money.
Wells Fargo, the fourth-largest U.S. lender, reported third-quarter earnings per share of $1.52, surpassing the $1.28 expected by analysts, according to LSEG data.
The bank’s NII for the quarter dropped 11% to $11.69 billion, slightly below analysts’ average prediction of $11.87 billion.
Raymond James analyst David Long remained optimistic, saying, “We remain bullish on WFC shares,” citing strong performance and higher noninterest income.
Banks’ interest income, which has benefited from rising rates in recent years, is expected to decline further as the Federal Reserve continues to lower its benchmark policy rate.