Wells Fargo’s (WFC) profit fell in the third quarter as the bank’s interest income came under pressure from subdued loan demand and higher payments to savers.
Shares of the investment bank rose more than 3% before the bell on Friday.
The fourth-largest U.S. lender reported net income of $5.11 billion for the three months ended September 30, compared with $5.78 billion a year earlier, the bank said.
Wells Fargo’s net interest income — or the difference between what it earns on loans and what it pays out on deposits — fell 11% to $11.69 billion in the third quarter.
Analysts had forecast an average of $11.87 billion, according to LSEG estimates.
Banks’ interest income, which has benefited in recent years as the Federal Reserve raised rates, is expected to continue to decline for the rest of 2024.
The US central bank cut its policy rate last month for the first time since 2020, cutting it by 50 basis points. Policymakers predict another half percentage point reduction by the end of this year.
The rate cut was followed by top banks cutting key interest rates, which is likely to shrink their interest income. The banks have also tightened credit conditions this year.
Several factors could also weigh on bank profits in the coming months. Demand for loans has been subdued as higher interest rates deterred commercial and consumer borrowers. At the same time, banks had to compete for deposits by paying customers more.
Wells Fargo is also reportedly redoubling efforts to lift the Federal Reserve’s $1.95 trillion asset limit, which is preventing the bank from growing until regulators believe problems dating back to the counterfeit accounts scandal have been resolved. 2016.
In September, a U.S. banking regulator found that safeguards against money laundering and other illegal transactions were too lax, limiting its ability to expand into high-risk businesses.
The asset cap limits Wells Fargo’s ability to take more deposits and expand its trading business, two potential growth areas for the bank, CEO Charlie Scharf said earlier this year.
The country still has eight legal penalties, so-called consent orders, that it is working on.
Quarterly profit per share was $1.42, compared to $1.48 a year earlier.
(Reporting by Manya Saini and Noor Zainab Hussain in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen and Sriraj Kalluvila)
